<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                           ANNUAL REPORT AND FORM 10-K

                       PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934


FOR THE YEAR ENDED
DECEMBER 31, 1999                                COMMISSION FILE NUMBER 0-11656

                            THE WENDT-BRISTOL HEALTH
                              SERVICES CORPORATION

             (Exact name of Registrant as specified in its charter)

             DELAWARE                                    22-1807533
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

TWO NATIONWIDE PLAZA, SUITE 760
          COLUMBUS, OHIO                                   43215
(Address of principal executive offices)                 (Zip Code)

                   REGISTRANT'S TELEPHONE NO.: (614) 221-6000

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

      Title of Each Class              Name of each exchange on which registered
      -------------------              -----------------------------------------
Common Stock, par value $.01 per share                   None

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                                      None

          Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ ] No [X] (by reason of late
filing of Form 10-K herein)

          On April 18, 2000, as a result of the delinquent and unfiled Form
10-K, the American Stock Exchange halted trading in the registrant's stock; on
such last day of trading, the aggregate market value of the voting stock of The
Wendt-Bristol Health Services Corporation held by non-affiliates of the
Registrant was approximately $3,031,000 based upon the closing price for such
Common Stock on said date as reported by the American Stock Exchange. On such
date, there were 6,069,356 shares of Common Stock of the Registrant outstanding.
On August 10, 2000, the American Stock Exchange delisted the Company as a result
of the delinquent and unfiled Form 10-K.

          Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K ___.


                      DOCUMENTS INCORPORATED BY REFERENCE:

                            See Part IV, Item 14(a)3


<PAGE>   2


                           ANNUAL REPORT ON FORM 10-K
                      FOR THE YEAR ENDED DECEMBER 31, 1999*

                                     PART I


ITEM 1.           BUSINESS

                  The Company, a Delaware corporation, was originally organized
                  under the laws of the State of New Jersey on January 19, 1966
                  under the name of Temco Products, Inc. and assumed its present
                  name on October 26, 1992. The Company, as a result of an
                  October 1991 sale of its manufacturing division located in New
                  Jersey, retained the real estate associated to that operation.
                  The Company maintained the property under a long-term lease
                  with the purchaser of the division until the purchaser filed
                  for Chapter XI protection in December 1999. At this time, the
                  Company is in the process of leasing the premises through the
                  use of a local real estate agent.

                  The operations of the Company are also conducted through its
                  wholly-owned subsidiary Wendt-Bristol Company ("W-B"),
                  currently a Delaware corporation that has been in existence
                  since 1903. W-B, through its approximately 86% owned
                  subsidiary Wendt-Bristol Diagnostics Company ("WBDC")
                  currently operates three multiple disciplinary medical
                  diagnostic centers that provide positron emission tomography
                  (PET), nuclear medicine, magnetic resonance imaging (MRI), CT
                  Scans, ultra-sound, x-ray, bone densitometry and mammography.

                  WBDC also owns 50% of Wendt-Bristol Diagnostic Co. L.P.
                  ("WBDC-LP") and Wendt-Bristol Crosswoods Ltd. ("WBC") and
                  provides management services for a fee to these centers. These
                  centers provide similar modalities as WBDC but do not provide
                  PET which is only available at the Jasonway Avenue facility
                  (the only PET in central Ohio).

                  Additionally, WBDC provides management services for a fee to
                  two additional centers in which it owns a 22 1/2% equity
                  interest in the entity: Wendt-Bristol Oncology Centers, Inc.
                  ("WB Oncology"). These centers provide radiation therapy. One
                  center is located adjacent to a hospital while the other is
                  located in the same building as WBDC's Jasonway facility that
                  provides PET.

                  In conjunction with its centers, WBDC also operates three
                  mobile mammography units which are placed at various
                  physicians offices on a scheduled short-term basis.

                  During June 1999, WBDC completed construction of a Women's
                  Health Center dedicated to early detection of breast disease
                  including an ambulatory surgery unit for breast surgery on
                  land adjacent to the WBDC-LP diagnostic and radiology
                  facility. The two facilities are connected as one building. It
                  is anticipated that the surgery unit will open in the fourth
                  quarter 2000.



---------------------------------------
* Statements contained herein concerning the provisions of any document are not
necessarily complete and, in each instance, reference is made to the copy of
such document filed as an exhibit to this Form 10-K or otherwise filed with the
Securities and Exchange Commission. Each such statement is qualified in its
entirety by such reference.


                                      I-1

<PAGE>   3


ITEM 1.           BUSINESS (CONTINUED)

                  During 2000, WBDC formed Positron Isotopes, LLC, a limited
                  liability company, in which the Company currently has a 50%
                  membership interest. Operations of a manufacturing facility
                  for radioactive isotopes is expected to begin in fall 2000.
                  These radioactive isotopes will be produced through use of a
                  cyclotron which has been ordered and financed by a bank (with
                  guarantees by each of the 50% members). Such isotopes are
                  essential to the operation of the PET unit and is expected to
                  provide more timely delivery enabling the Company to perform
                  increased number of patient procedures as well as additional
                  types of procedures. The cyclotron will also produce other
                  nuclear medicine material for use by WBDC and unrelated
                  third-party customers, including hospitals.

                  The nature of the Company's business has undergone changes
                  over the past several years. During the years from 1993
                  through 1998, the Company operated and subsequently sold or
                  ceased operations of three retail pharmacies, two nursing
                  homes, a Medicare-certified home health care agency and a
                  medical office building. On November 30, 1999, the Company
                  sold its remaining nursing home. In June 2000, the Company
                  ceased operations in the WB Oncology facility located in the
                  same building as WBDC's diagnostic center. Management is
                  exploring the possibility of obtaining an unrelated third
                  party for a "turn-key" operation or sale of the WB Oncology
                  facility. In the event the "turn-key" or sale is not
                  consummated, it is management's intent to vacate its corporate
                  office space and move into this facility.

                  The Company's primary activities are currently located in
                  Central Ohio.

                  COMPETITION. Though the Company's business activities are
                  subject to a number of competitive forces, they are fairly
                  regional in scope. The customers of diagnostic and radiation
                  therapy centers generally do not travel far from home to have
                  those services performed, and the competitors of the Company
                  are, therefore, located in the metropolitan Columbus and
                  Newark, Ohio area.

                  The diagnostic and radiation therapy centers component of the
                  Company's business is subject to competition from not only
                  other independent centers, but hospitals and
                  hospital-affiliated centers as well. In recent years, the
                  pressures imposed by "managed care" insurers have forced the
                  Company's centers to accept decreased reimbursement rates.
                  Moreover, hospitals in the Columbus, Ohio market have fairly
                  recently begun to expand and build new centers. The hospitals
                  are at a somewhat competitive advantage related to their
                  relationship with staff physicians and the ability to come
                  into contact with potential patients immediately when the
                  person is hospitalized. The Company's centers and their
                  respective potential patients, however, do not have to deal
                  with the inconvenience of admitting the patients but do have
                  access, free transportation and flexible hours of business
                  which appeals to many patients.

                  EMPLOYEES: LABOR RELATIONS. The Company had approximately 150
                  employees at June 30, 2000. The Company considers its
                  relations with its employees to be good.

                  PATENTS AND TRADEMARKS. The Company owns registered
                  trademarks, including "the Best of Health!", which are
                  utilized in connection with the marketing of Company services
                  and products.

                  INDUSTRY SEGMENTS. The operations of the Company and its
                  subsidiaries during 1999 fell within two industry segments:
                  Nursing homes; and Medical services and other. The nursing
                  home segment was discontinued in December 1999; therefore, the
                  financial statements have been restated to reflect the
                  discontinued operations in the Consolidated Statement of
                  Operations.




                                       I-2


<PAGE>   4


ITEM 1.           BUSINESS (CONTINUED)

                  The Company has adopted Statement of Financial Accounting
                  Standards (SFAS) No. 131, "Disclosures about Operating
                  Segments". The operations of the Company and its subsidiaries
                  are all located in Central Ohio and fall within two industry
                  segments: Nursing homes; and Medical services and other.
                  Management considers income taxes as a corporate expense and
                  accordingly does not allocate this cost or benefit to the
                  operating segments. The following is a summary of key segment
                  information for the years ended December 31, 1999, 1998 and
                  1997, respectively.

<TABLE>
<CAPTION>
                                                                                         MEDICAL
                                                                         NURSING       SERVICES AND
                                                                          HOMES (1)       OTHER (2)         TOTAL
                                                                          -----           -----             -----
<S>                                                           <C>                <C>              <C>
                                       1999
                                       ----
                    Revenues/sales to unaffiliated customers  $        3,925,233 $      4,593,619 $      8,518,852
                    Interest income                                       24,444           37,626           62,070
                    Interest expense                                      14,359        1,083,469        1,097,828
                      Net interest expense (income)                     (10,085)        1,045,843        1,035,758
                    Depreciation and amortization                         40,589          753,863          794,452
                    Segment profit (loss)                                208,221      (6,942,595)      (6,734,374)
                    Equity in earnings (losses) of affiliates            -              (163,483)        (163,483)
                    Investments and related advances, net                -              3,440,171        3,440,171
                    Segment assets                                       811,200       18,367,110       19,178,310
                    Expenditures for segment assets                       24,225        4,968,086        4,992,311

                                       1998
                                       ----
                    Revenues/sales to unaffiliated customers  $        3,894,002 $      3,718,637 $      7,612,639
                    Interest income                                           12          239,299          239,311
                    Interest expense                                      10,208          599,737          609,945
                      Net interest expense                                10,196          360,438          370,634
                    Depreciation and amortization                         41,687          333,344          375,031
                    Segment profit (loss)                               (53,739)        (390,760)        (444,499)
                    Equity in earnings (losses) of affiliates           -                (20,100)         (20,100)
                    Investments and related advances, net               -               4,663,780        4,663,780
                    Segment assets                                     3,917,015       16,301,219       20,218,234
                    Expenditures for segment assets                       47,889        5,038,623        5,086,512

                                       1997
                                       ----
                    Revenues/sales to unaffiliated customers          13,428,624        3,701,627       17,130,251
                    Interest income                                        1,913          168,003          169,916
                    Interest expense                                     621,462          441,555        1,063,017
                      Net interest expense                               619,549          273,552          893,101
                    Depreciation and amortization                        209,502          150,134          359,636
                    Segment profit (loss)                              1,560,091        (698,442)          861,649
                    Equity in earnings (losses) of affiliates           -                 348,206          348,206
                    Investments and related advances, net               -               3,036,998        3,036,998
                    Segment assets                                     9,291,623        8,215,838       17,507,461
                    Expenditures for segment assets                      278,606          315,341          593,947
</TABLE>

                  (1) The nursing home segment has been classified as
                  discontinued operations in the consolidated statements of
                  operations.

                  (2) WBDC operates, as Manager, facilities which it owns 50% or
                  less and the above does not include those entities in the
                  consolidation other than "equity in earnings (losses) of
                  affiliates".



                                       I-3


<PAGE>   5


ITEM 1.           BUSINESS (CONTINUED)

                  RISK FACTORS. The Company has a history of net losses and
                  negative cash flow and is currently unable to satisfy its
                  needs from operations. The Company has experienced net losses
                  for December 31, 1999 and 1998 it expects that losses will
                  continue for the year ended December 31, 2000. The Company
                  cannot know when, if ever, net cash generated by its internal
                  business operations will support its growth and continued
                  operations.

                  The Company needs substantial amounts of additional financing:

                  (a)  The Company anticipates that cash will be required for:

                              -      Operating expenses
                              -      Debt service requirements
                              -      Other corporate expenditures

                  The Company expects cash needs will exceed cash flows from
                  operating activities through 2000. In addition, operations may
                  need to be revised to respond to competitive and other factors
                  so the need for cash may increase.

                  (b) A current financing agreement contains certain
                  restrictions on additional financing that can adversely effect
                  operations. Current cash needs are greater than cash on hand
                  and availability under the existing financing agreements. As a
                  result, additional funds in the form of accounts receivable
                  financing, equity and/or debt financing will be required to
                  support current operations.

                  The Company's 5% bonds are registered with SG Ruegg Bank, Ltd.
                  in the original principle amount of 5,000,000 Swiss Francs
                  ($3,416,934). The bonds include a restriction prohibiting
                  obtaining financing collateralized by accounts receivable. The
                  availability of any accounts receivable financing will be
                  subject to obtaining a waiver of the covenant that restricts a
                  grant lien on accounts receivable. Further, even if the
                  restriction is waived, there can be no assurance that such
                  financing can be obtained, or if obtained, that it will be on
                  favorable terms.

                  (c) Funding for operational and capital needs is not assured.
                  The Company currently has no legal binding commitments or
                  understandings with any third parties to obtain any material
                  amount of additional equity or debt financing. The Company
                  cannot be assured that additional financing can be obtained or
                  should the financing be obtained, that it will be on
                  acceptable terms. As a result, there is no assurance that
                  adequate capital will be available to maintain the current
                  levels of operation.

                  (d) As a result of the Company's inability to pay its outside
                  auditors the balance of prior year audit fees, the financial
                  statements included in this report do not contain the
                  auditors' opinion, however, a mutually acceptable payment
                  schedule has been negotiated. Upon successful completion of
                  the payment terms, the opinion will be rendered on a "going
                  concern" basis.

                  (e) The Company is in arrears on a number of payment
                  obligations to all it's secured creditors. Negotiations are
                  continuing with all such creditors, any failure to
                  successfully conclude negotiations will adversely affect the
                  Company's continuing operations.

                  (f) Although the Company has been in continuous negotiations
                  with a number of parties relating to possible sale-leasebacks,
                  strategic joint ventures and sale of a portion of assets, all
                  designed to alleviate the cash flow difficulties and, in
                  certain cases, improve operations, there can be no assurance
                  that such endeavors will be successful. Although negotiations
                  continue, the Company has been unable to enter into definitive
                  agreements at this time.

                  Forward-looking statements are subject to a variety of factors
                  that could cause actual results to differ materially from
                  current beliefs.


                                       I-4


<PAGE>   6


                  "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES FORM ACT
                  OF 1995. Some of the statements made in this annual report are
                  not historical or current facts, but deal with potential
                  future circumstances and developments. They can be identified
                  by the use of forward-looking word such as "believes",
                  "expects", "plans", "may", "will", "would", "could", "should"
                  or "anticipates" or other comparable words, or by discussions
                  of strategy that involves risk and uncertainties. These
                  forward-looking statements are only predictions , which are
                  subject to risks and uncertainties, including financial
                  variations. The Company has attempted to identify, in context,
                  some of the factors that it currently believes may cause
                  actual future experience and results to differ from our
                  current expectations regarding the relevant matter or subject
                  area. The Company's operations may also be subject to the
                  effect of other risks and uncertainties in addition to the
                  other qualifying factors identified in this "Risk Factors"
                  section and elsewhere in this annual report, including but not
                  limited to:

                  -   General economic conditions in the geographic areas and
                      market segments in which the Company operates

                  -   Ability to achieve and maintain market penetration

                  -   Growth and levels of accounts receivables and collection
                      of accounts receivables

                  -   Access to sufficient debt or equity capital to meet
                      operating and financing needs

                  REGULATION OF THE HEALTH CARE INDUSTRY. The Company must
                  comply with extensive federal, state and local government
                  regulations applicable to the health care industry.

                  The Company also may be affected, directly or indirectly, by
                  legislation affecting medical cost reimbursements. In recent
                  years, Congress has enacted legislation aimed at controlling
                  the cost to certain patients of medical products and services
                  through the regulation of the primary federal and state
                  reimbursement programs: Medicare, a federal program for
                  certain elderly or disabled patients and certain patients
                  suffering from end stage renal disease, and Medicaid, a
                  jointly sponsored federal and state program which focuses on
                  assisting certain qualified recipients.

                  Legislative proposals to regulate or control health care costs
                  and to institute a national health insurance program have been
                  made from time to time and are currently receiving further
                  consideration. Because these proposals vary, their potential
                  effect on the health care industry also vary. If, in the
                  future, legislation or regulations were to be adopted that
                  would significantly reduce governmental reimbursement rates or
                  rates to be charged to private-pay patients, such legislation
                  or regulations could have a material adverse effect on the
                  Company.

                  REQUIREMENT OF CERTIFICATE OF NEED. In recent years,
                  Certificate of Need ("CON") laws and regulations have been
                  relaxed and even eliminated in certain instances.

                  The acquisition of an MRI does not require a CON and is not
                  reviewable (unless the cost is $2 million or more), but does
                  require filing a notice of intent with the Director of Health
                  and the local health care agency 60 days prior to the
                  purchase.

                  Capital expenditures of $2 million or more on behalf of a
                  health care facility in connection with the provision of a
                  health service do require filing a notice of intent with the
                  Director of Health and the local health agency 60 days prior
                  to obligating the capital expenditure.

                  The Company's business operations and plans must comply with
                  the foregoing laws. There can be no guarantee that such laws
                  will not be expanded in the future.



                                       I-5


<PAGE>   7


ITEM 2.           PROPERTIES

                  The Company leases approximately 6,100 square feet of space in
                  a downtown Columbus, Ohio office building which serves as the
                  Company's and WBDC's general offices. It is management's
                  intent to terminate its lease and move into a facility leased
                  by WBDC. Certain operations were terminated at the equity
                  affiliates facility in Columbus, Ohio in June 2000. Management
                  is exploring the possibility of obtaining an unrelated third
                  party for a "turn-key" operation or sale of this facility. In
                  the event the "turn-key" or sale is not consummated, it is
                  management's intent to vacate the downtown property and move
                  into this facility thereby leasing approximately 10,600 square
                  feet of office space in Columbus, Ohio for its general
                  offices.

                  In addition, a warehouse (1,000 square feet) is leased in
                  Columbus, Ohio to store records and durable medical equipment.
                  The Company closed two pharmacies during 1997; one leased
                  premises in Columbus, Ohio (4,000 square feet) and one leased
                  in Canal Winchester (4,000 square feet). The Company sold its
                  only remaining pharmacy in 1998, which leased space in a
                  department store in downtown Columbus, Ohio (3,300 square
                  feet).

                  In February 1998, a subsidiary of the Company opened a 3,200
                  square feet diagnostic center in nearby Granville, Ohio. This
                  one story center, Wendt-Bristol Erinwood, operates on leased
                  premises. Additional modalities were added in 1999 and
                  approximately 1,500 square feet of office space.

                  In October 1998, a subsidiary of the Company opened a 10,600
                  square foot diagnostic center in Columbus, Ohio. Jasonway
                  Diagnostics operates on leased facilities. In April 1999, WBDC
                  acquired from unconsolidated equity affiliates two properties
                  which include land and building. The Company rents the
                  properties to the equity affiliates.

                  The Company, through a subsidiary, opened in June 1999 its
                  Women's Health Center on Kenny Road. This 7,500 square foot
                  center focuses on women's health and imaging services and
                  includes an outpatient surgical suite for breast surgery
                  expected to open in fourth quarter 2000.

                  The present aggregate annual rentals of all property leases
                  referred to are approximately $461,000 and their terms have
                  expiration dates ranging through July 2015.

                  The Company believes that the facilities described or referred
                  to above are adequate and sufficient for its present needs and
                  requirements.

                  The Company owns land and a plant located in Passaic, N.J.,
                  which were formerly used by its Healthcare Division
                  (manufacturer of durable medical equipment), which was sold on
                  October 1, 1991. This property was leased to the purchaser at
                  the time of the transaction and the mortgage amortization
                  schedule coincided with the term of the lease. The tenant
                  vacated the premises and has filed for bankruptcy in 1999. The
                  Company is in the process of leasing the premises to one or
                  more new tenants and has established a working relationship
                  with the bank/mortgagor.

                  The New Jersey Department of Environmental Protection and
                  Energy ("NJ DEPE") determined that the Passaic, New Jersey,
                  real estate of the Company did not completely comply with
                  applicable New Jersey laws and regulations pertaining to the
                  environment. The contamination in question had resulted
                  primarily from underground tanks, long abandoned by prior
                  owners of the site, and the contents thereof. All of such
                  tanks have been removed by the Company. In part the
                  contamination was also attributable to the method, initiated
                  by prior operators, of disposal of solvents. The Company has
                  incurred total costs of $1,119,000 related to environmental
                  matters in New Jersey, of which $208,000 was spent in the five
                  fiscal (calendar) years ended December 31, 1999. The Company
                  has been advised by its special New Jersey counsel and
                  independent environmental engineer that this matter is
                  expected to be completed by the end of 2000; estimated 2000
                  costs are approximately $125,000 (which are available in a
                  previously established escrow fund supervised by the NJ DEPE).


                                       I-6


<PAGE>   8


ITEM 3.           LEGAL PROCEEDINGS

                  A judgment was entered against The Wendt-Bristol Health
                  Services Corporation on February 26, 2000, in favor of
                  Schottenstein, Zox & Dunn Co., L.P.A. in the case of
                  SCHOTTENSTEIN, ZOX & DUNN CO., L.P.A. V. THE WENDT-BRISTOL
                  HEALTH SERVICES CORPORATION, Case No. 00CVH02-1714, Court of
                  Common Pleas, Franklin County, Ohio. The judgment is in the
                  sum of $117,894 including interest. The action involves the
                  claim of the former legal counsel for the Company for unpaid
                  fees. The Company filed a Motion for Relief from Judgment,
                  which was denied by the Court's decision dated July 3, 2000.
                  The plaintiff has sought collection of the judgment, but thus
                  far has recovered only $1,643. On March 24, 2000,
                  Schottenstein, Zox & Dunn ("SZD") filed a Creditor's Bill and
                  Complaint in the Court of Common Pleas of Franklin County,
                  Ohio (Case No. 00CVH03-02642) wherein they sought a lien on
                  all outstanding shares (the "Shares") of the Wendt-Bristol
                  Company ("WB"). The shares were in the possession of Heller
                  Health Care Finance, Inc. ("Heller"). The shares had been
                  pledged as security for a loan transaction between Health Care
                  Financial Partners ("HCFP") and the Company entered into on or
                  about May 30, 1996. Heller Health Care Financing, Inc.
                  acquired Health Care Financial Partners (HCFP) subsequent to
                  the loan payoff. SZD obtained a default judgment against the
                  Company on August 25, 2000. The Company contends that proper
                  service was not obtained and the Company did not have proper
                  notice of the litigation. On or about July 18, 2000, Heller
                  assigned to Ike's Pond, Inc. ("Pond"), a wholly owned
                  subsidiary of SZD, all of its right, title and interest in and
                  to any indebtedness from the Company to Heller, the Shares,
                  the stock pledge, and the financing documents between Heller
                  and the Company. Pursuant to that assignment, Pond issued a
                  notice of sale of the Shares on August 25, 2000, advising
                  persons receiving the notice, of an auction of the Shares to
                  be held on September 5, 2000. The Wendt-Bristol Health
                  Services Corporation ("WBHS") filed a complaint in Franklin
                  County Court of Common Pleas against all of the above parties
                  on August 31, 2000 for a declatory judgement that the shares
                  pledged to HCFP be returned to the Company and seeking damages
                  for defamation, breach of fiduciary duty and conversion.

                  On September 25, 2000 both cases with SZD were settled whereby
                  the Company has agreed to pay past due legal fees with
                  interest in the amount of $140,000 as follows: $25,000 as a
                  down payment and $15,000 every other week until payment in
                  full is made. Pursuant to the settlement terms, the WB shares
                  are to be held by Marvin D. Kantor, Chairman of the Company,
                  in escrow, subject to SZD's Creditor's Bill with the
                  obligation to transfer the shares to SZD in the event of
                  default in payment of the settlement terms.

                  An action was filed in the Common Please Court of Montgomery
                  County, Ohio on April 27, 2000, captioned K-S NUCLEAR, INC.,
                  ET AL. V. WENDT-BRISTOL DIAGNOSTIC COMPANY (Case No.
                  2000CV1908). In that action, the plaintiffs claim that WBDC is
                  indebted to them for diagnostic and consulting services
                  rendered between May 1998 and January 2000, in the sum of
                  $174,100. WBDC has filed a Counterclaim in the action,
                  claiming the conversion of an item of equipment, and seeking
                  damages in the sum of $58,000. While WBDC acknowledges that
                  the plaintiff has not been paid in full for all services
                  rendered to WBDC, the exact amount of WBDC's obligation is in
                  dispute. Furthermore, WBDC believes that its claim of
                  conversion against the plaintiff is meritorious.

                  An action was filed in the Court of Common Pleas, Franklin
                  County, Ohio, captioned RED LINE MEDICAL SUPPLY V. THE
                  WENDT-BRISTOL COMPANY (Case No. 00CVH05-4336) on May 15, 2000.
                  The claim of the plaintiff is for sums allegedly owed on an
                  account for medical supplies, in the sum of $101,882. W-B has
                  defended on the basis that many of the goods for which the
                  plaintiff seeks payment were sold to affiliated companies, and
                  not W-B itself. W-B also asserts that a number of the invoices
                  for which the plaintiff seeks payments have been paid, and
                  W-B's account balance has not been reduced by a number of
                  credits. While W-B may ultimately be successful in defending
                  against a considerable portion of plaintiff's claim,
                  affiliated companies may ultimately be held liable for some of
                  the claimed amounts.


                                       I-7

<PAGE>   9

ITEM 3.           LEGAL PROCEEDINGS (CONTINUED)

                  A lawsuit was filed in the Court of Common Pleas, Franklin
                  County, Ohio on May 26, 2000, captioned BADGER ACQUISITION OF
                  OHIO, LLC V. WENDT-BRISTOL HEALTH SERVICES CORP. (Case No.
                  00CVH05-4741), wherein the plaintiff claims the sum of
                  $160,871 for allegedly unpaid invoices for pharmaceutical
                  products. The Company has not yet filed its answer in this
                  case, but intends to do so. The claims filed by plaintiff are
                  not for goods purchased by the Company, but by companies
                  affiliated with the Company. The Company has not yet, at this
                  time, determined whether the claims, if brought against the
                  proper entities, have merit.

                  THREATENED LITIGATION AND RELATED MATTERS

                  The Company and/or Wendt-Bristol Diagnostics Company is
                  currently in default under 9 equipment leases and maintenance
                  agreements with Siemens Financial Services, Inc. and/or its
                  affiliates ("Siemens") pursuant to which the lessors are
                  claiming acceleration of $4,443,572 of lease obligations, plus
                  late charges and any other fees, costs and expenses, including
                  attorney fees, which may be due as a result of default. The
                  Company is continuing its negotiations with Siemens in an
                  attempt to refinance the leases and defer payments. Certain of
                  the equipment is material to the operations of the Company and
                  its business would be substantially impaired if a workout is
                  not consummated or not consummated on favorable terms.

                  Additionally, the Company and/or Wendt-Bristol Diagnostics
                  Company is currently in default under 25 equipment leases and
                  a maintenance agreement with G.E. Medical Systems ("G.E.")
                  pursuant to which the lessors are claiming acceleration of
                  $3,276,866 of lease obligations. Equipment maintenance is
                  maintained on a COD basis. The Company is continuing its
                  negotiations with G.E. in an attempt to refinance the leases
                  and defer payments. Certain of the equipment is material to
                  the operations of the Company and its business would be
                  substantially impaired if a workout is not consummated or not
                  consummated on favorable terms.

                  On August 17, 2000, a group of individuals alleging ownership
                  of 1,820,987 shares of common stock of the Company filed a
                  Schedule 13D with the Securities and Exchange Commission
                  indicating an intention to elect a slate of directors which
                  they intend to nominate. No slate has, as of yet, been
                  proposed by such parties. On August 30, 2000 the Company filed
                  a Complaint for Declaratory Injunctive and Other Relief in the
                  United States District Court for the Southern District of
                  Ohio, Eastern Division, Civil Action No. 200-996 against the
                  parties to the 13D, alleging, among other things (i) the
                  intentional and fraudulent omission of required information
                  rendering the 13D statement invalid and unenforceable and
                  asking for a declaratory judgment and injunctive relief and
                  (ii) breach of fiduciary duty by defendants Clemente Del
                  Ponte, a past director, and McBridge Advisory Ltd., an
                  affiliate of Del Ponte, by disclosing confidential and
                  proprietary financial and other information to third parties,
                  resulting in monetary damage to the Company.

ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

                  During the fourth quarter of 1999, no matters were submitted
                  to a vote of security holders.

                  The annual shareholders' meeting has not been scheduled
                  pending the completion and filing of its Annual Report Form
                  10-K. At such time, a meeting will be scheduled and a mailing
                  (including such report) will be sent to holders of record.



                                       I-8

<PAGE>   10
                                     PART II

ITEM 5.           MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
                  STOCKHOLDER MATTERS

                  (a)      Price Range of Common Stock

                      The high and low trade prices for the Company's Common
                      Stock and Common Stock Purchase Warrants as reported by
                      the American Stock Exchange for the periods indicated are
                      as follows:

<TABLE>
<CAPTION>
                         AMEX SYMBOL                      WMD                             WMD.WS (A)

                            YEAR                     COMMON STOCK                          WARRANTS
                            ----                     ------------                          --------
                             1999                HIGH              LOW              HIGH               LOW
                             ----                ----              ---              ----               ---
<S>                      <C>                   <C>               <C>             <C>               <C>
                         1st Quarter            1 5/16             3/4                *                 *
                         2nd Quarter            1 7/16            11/16              3/8              1/16
                         3rd Quarter           1 11/16              1                (A)               (A)
                         4th Quarter            1 1/8              5/8               (A)               (A)

                             1998
                             ----
                         1st Quarter           1 3/8              1 1/16            1 1/4              3/8
                         2nd Quarter           1 5/8               1 1/8             7/8               1/4
                         3rd Quarter           1 5/8               1 1/4             3/4               5/8
                         4th Quarter           1 3/8                1                1/2               1/2
</TABLE>

                    * Not Traded

                  (A) The warrants expired May 1, 1999. Series II warrants would
                      be issued upon exercise of the previous warrants.
                      Effectively, the Series II warrants expired with the
                      warrants on May 1, 1999 since a minimal amount of the
                      warrants were exercised prior to May 1, 1999. The Series
                      II warrants expired May 1, 2000.

                  As a result of the delinquency in filing the 1999 Form 10-K,
                  trading was suspended by the American Stock Exchange on April
                  18, 2000. On August 10, 2000, the American Stock Exchange
                  delisted the Company as a result of the delinquent filing.
                  Until such time as the Company completes the required filings
                  for application to another market maker, there is no market
                  for the Company's common stock.

                  In conjunction with the issuance of these Series 1 Bonds, the
                  Company issued 33 Series No. 1 Warrants exercisable into a
                  total of 300,000 shares of the common stock of the Company for
                  two dollars ($2.00) per share. The Warrants were issued
                  pursuant to Regulation S of the Securities Act of 1933 and
                  there is no established public trading market for these
                  Warrants.




                                      II-1

<PAGE>   11


ITEM 5.          MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
                 STOCKHOLDER MATTERS (CONTINUED)

                  (b)   Approximate Number of Equity Security Holders

                      The number of holders of record for each class of equity
                      securities of the Company as of June 30, 2000 was as
                      follows:

                                                             NUMBER OF HOLDERS
                    TITLE OF CLASS                             OF RECORD (1)
                    --------------                           -----------------
                    Common Stock, par value $.01
                     per share ("Common Stock")                     696

                    Common Stock Purchase Warrants (A)              n/a

                    Series No. 1 Warrants                            1

                      (1) The number of stockholders of record includes shares
                          held in "nominee" or "street" name.

                           (A) The warrants expired May 1, 1999. Series II
                           warrants would be issued upon exercise of the
                           previous warrants. Effectively, the Series II
                           warrants expired with the warrants on May 1, 1999
                           since a minimal amount of the warrants were exercised
                           prior to May 1, 1999. The Series II warrants expired
                           May 1, 2000.

                  (c)   Dividends

                      No cash dividends have been declared or paid by the
                      Company.

                  This chart shows the Company's performance in the form of
                  cumulative total return to shareholders from December 31, 1994
                  until December 31, 1999 in comparison to Standard and Poor's
                  500 and Standard and Poor's 500 Healthcare Composite Index.


<TABLE>
<CAPTION>
                                                                       ANNUAL RETURN PERCENTAGE
                                                                             YEARS ENDING
                                                        --------------------------------------------------------

                               COMPANY/INDEX            DEC 95     DEC 96      DEC 97     DEC 98      DEC 99
                               -------------            ------     ------      ------     ------      ------

<S>                                                          <C>        <C>       <C>            <C>    <C>
                    Wendt-Bristol Health Svc Cp              28.60      166.90    (16.67)        4.96   (52.36)
                    Health Care - 500                        57.85       20.75      43.72       44.22     21.04
                    S & P 500 Index                          37.58       22.96      33.36       28.58    (8.24)


                                                                        INDEXED RETURNS
                                                                          YEARS ENDING
                                               -------------------------------------------------------------------
                                                BASE
                                               PERIOD
                          COMPANY/INDEX        DEC 94      DEC 95     DEC 96     DEC 97      DEC 98     DEC 99
                          -------------        ------      ------     ------     ------      ------     ------

                    Wendt-Bristol Health
                     Svc Cp                            100     128.60     343.25      286.04     300.23    143.02
                    Health Care - 500                  100     157.85     190.61      273.93     395.06    362.49
                    S & P 500 Index                    100     137.58     169.17      225.60     290.08    351.12
</TABLE>



                                      II-2


<PAGE>   12


Item 6.     SELECTED FINANCIAL DATA

                             SELECTED FINANCIAL DATA
         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES


                        (In Thousands, Except Share Data)



<TABLE>
<CAPTION>
                                                                                Year Ended December 31,
                                                             1999          1998            1997            1996         1995
<S>                                                     <C>            <C>             <C>            <C>           <C>
INCOME STATEMENT DATA
Revenues:
  Net sales                                             $         -    $     1,092     $     2,435    $     2,816   $     2,709
  Service income                                              4,594          2,627           1,266          1,570         1,879
                                                        -----------    -----------     -----------    -----------   -----------
                                                              4,594          3,719           3,701          4,386         4,588
                                                        -----------    -----------     -----------    -----------   -----------
Costs and expenses:
  Cost of sales                                                  -             837           1,820          2,072         1,920
  Selling, general and administrative expenses, net           5,332          2,982           2,482          2,914         2,682
  Depreciation                                                  754            334             150            155           147
  Non-recurring items                                         4,869              -               -              -             -
                                                        -----------    -----------     -----------    -----------   -----------
                                                             10,955          4,153           4,452          5,141         4,749
                                                        -----------    -----------     -----------    -----------   -----------

Operating income (loss)                                      (6,361)          (434)           (751)          (755)         (161)
                                                        -----------    -----------     -----------    -----------   -----------

Other income (expense):
  Minority interest in affiliates, net                          166            (62)           (102)           (54)          (23)
  Equity in earnings of affiliates                             (163)           (20)            349            425           502
  Interest expense                                           (1,046)          (462)           (307)          (224)         (231)
  Gain on sale of  assets                                        61            422              -              -             -
  Other, net                                                      6            107               6             92          (110)
                                                        -----------    -----------     -----------    -----------   -----------
                                                               (976)           (15)            (54)           239           138
                                                        -----------    -----------     -----------    -----------   -----------

Loss before income taxes                                     (7,337)          (449)           (805)          (516)          (23)

Benefit for income taxes                                        175             75             333             52            66
                                                        -----------    -----------     -----------    -----------   -----------

Net income (loss) from continuing operations                 (7,162)          (374)           (472)          (464)           43

Income (loss) from discontinued operations, net
 of tax and minority interest                                   (65)            99             649            218           174

Gain on disposal of discontinued operations,
 net of tax and minority interest                               276              -           1,205              -             -
                                                        -----------    -----------     -----------    -----------   -----------

Income before extraordinary item and
 cumulative effect of a change in accounting
 principle                                                   (6,951)          (275)          1,382           (246)          217

Extraordinary gain on forgiveness of debt,
 net of tax and minority interest                               337              -               -              -             -

Cumulative effect of a change in accounting
 principle, net of tax and minority interest                   (305)             -               -              -             -
                                                        -----------    -----------     -----------    -----------   -----------

Net income (loss)                                       $    (6,919)   $      (275)    $     1,382    $      (246)  $       217
                                                        ===========    ===========     ===========    ===========   ===========
</TABLE>


                                      II-3

<PAGE>   13

Item 6.     SELECTED FINANCIAL DATA (CONTINUED)

<TABLE>
<CAPTION>
                                                                                          SELECTED FINANCIAL DATA
                                                                      THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

                                                                                     (In Thousands, Except Share Data)


                                                                                     Year Ended December 31,
                                                            1999              1998             1997            1996        1995

<S>                                                 <C>               <C>              <C>              <C>              <C>
Per share data - income (loss)
  Basic:
    Income (loss) from continuing operations        $        (1.18)   $       (0.06)   $       (0.08)   $       (0.08)   $   0.01
    Income (loss) from discontinued operations                0.04             0.02             0.30             0.04        0.03
    Extraordinary item                                        0.01          --               --               --             --
    Cumulative effect of a change in accounting
     principle                                               (0.01)         --               --               --             --
                                                     -------------     ------------     ------------     ------------     ----------
                                                    $        (1.14)   $       (0.04)   $        0.22    $       (0.04)   $   0.04
                                                     =============     ============     ============     ============     ==========
  Diluted:
    Income (loss) from continuing operations        $        (1.18)   $       (0.06)   $       (0.09)   $       (0.08)   $   0.01
    Income (loss) from discontinued operations                0.04             0.02             0.30             0.04        0.03
    Extraordinary item                                        0.01          --               --               --             --
    Cumulative effect of a change in accounting
     principle                                               (0.01)         --               --               --             --
                                                     -------------     ------------     ------------     ------------     ----------
                                                    $        (1.14)   $       (0.04)   $        0.21    $       (0.04)   $   0.04
                                                     =============     ============     ============     ============     ==========

Weighted average shares
  Basic                                               6,059,464        6,113,646        6,224,241        5,825,686     6, 131,770
  Diluted                                             6,059,464        6,113,646        6,916,241        5,825,686     6, 131,770

BALANCE SHEET DATA (at year end)
  Working capital (deficiency)                      $    (7,941)      $      476       $    2,526       $   (1,195)      $ (3,887)
  Total assets                                           19,178           20,218           17,507           19,910         19,394
  Long-term debt and lease obligations, net of
   current portion                                        9,324           11,014            6,034            9,084          6,432
  Stockholders' equity (deficit)                         (1,353)           5,520            6,045            4,742          4,543

</TABLE>


NOTE: The selected financial data has been restated for discontinued operations
(see Note 2B in Notes to Consolidated Financial Statements).

The following supplemental information combines revenues from the consolidated
financial statements as above with total revenues of entities accounted for
under the equity method (see Note 5 in Notes to Consolidated Financial
Statements). The Company obtains management fees from the equity affiliates
based on net cash received for services from these equity affiliates.

<TABLE>
<CAPTION>
                                                                           SUPPLEMENTAL INFORMATION


<S>                                                        <C>              <C>              <C>              <C>            <C>
Revenues - consolidated, as above                          $ 4,594          $ 3,719          $ 3,701          $ 4,386        $ 4,588

Revenues - unconsolidated entities                           7,625            7,204            5,667            4,218          4,087
                                                     -------------     ------------     ------------     ------------     ----------

Combined revenues from continuing operations                12,219           10,923            9,368            8,604          8,675

Revenues from discontinued operations                        3,925            3,894           13,429           13,148         12,605
                                                     -------------     ------------     ------------     ------------     ----------

Combined revenues                                          $16,144          $14,817          $22,797          $21,752        $21,280
                                                     =============     ============     ============     ============     ==========
</TABLE>


NOTE:  Reference should be made to the Notes to the Financial Statements herein.


                                      II-4

<PAGE>   14


ITEM 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                  AND RESULTS OF OPERATIONS

                  Except for historical information contained herein, certain
                  matters discussed herein are forward-looking statements made
                  pursuant to the safe harbor provisions of the Private
                  Securities Litigation Reform Act of 1995. Any statements that
                  express, or involve discussions as to, expectations, beliefs,
                  plans, objectives, assumptions or future events or
                  performances (often, but not always, through the use of words
                  or phrases such as will likely result, are expected to, will
                  continue, is anticipated, estimate, projection, outlook) are
                  not statements of historical facts and may be forward-looking.
                  Forward-looking statements involve estimates, assumptions and
                  uncertainties that could cause actual results to differ
                  materially from those expressed in the forward-looking
                  statements. These forward-looking statements are based largely
                  on the Company's expectation and are subject to a number of
                  risks and uncertainties, including but not limited to,
                  economic, competitive, regulatory, growth strategies,
                  available financing and other factors discussed elsewhere in
                  this report and in the documents filed by the Company with the
                  SEC. Many of these factors are beyond the Company's control.
                  Actual results could differ materially from the
                  forward-looking statements made. In light of these risks and
                  uncertainties, there can be no assurance that the results
                  anticipated in the forward-looking information contained in
                  this report will, in fact, occur.

                  Any forward-looking statement speaks only as of the date on
                  which such statement is made, and the Company undertakes no
                  obligation to update any forward-looking statement or
                  statements to reflect events or circumstances after the date
                  on which such statement is made or to reflect the occurrence
                  of unanticipated events, unless necessary to prevent such
                  statements from becoming misleading. New factors emerge from
                  time to time and it is not possible for management to predict
                  all of such factors, nor can it assess the impact of each such
                  factor on the business or the extent to which any factor, or
                  combination of factors, may cause actual results to differ
                  materially from those contained in any forward-looking
                  statements.

<TABLE>
<CAPTION>
                  SUMMARY OF CONSOLIDATED FINANCIAL RESULTS
                  -----------------------------------------

                                                             1999                   1998                   1997
                                                             ----                   ----               -   ----
                    OPERATIONS                                    (In thousands, except per share data)
                    ----------

<S>                                                        <C>                    <C>                 <C>
                    Revenues:
                      Net sales                           $   -                    $     1,092          $    2,435
                      Service income                              4,594                  2,627               1,266
                                                            -----------              ---------           ---------
                    Total revenues                        $       4,594            $     3,719          $    3,701
                                                            ===========              =========           =========

                    Operating income (loss)               $     (6,361)            $     (434)          $    (751)
                    Percent of total revenues                    (74.7)                  (5.8)                 5.0

                    Net loss from continuing
                     operations                           $     (7,162)            $     (374)          $    (472)
                    Net income (loss) from
                     discontinued operations                       (65)                     99                 649
                    Gain on disposal of
                     discontinued operations                        276               -                      1,205
                    Extraordinary gain on
                     forgiveness of debt                            337               -                     -
                    Cumulative effect of a change
                     in accounting principle                      (305)               -                     -
                                                            ----------               ---------           ---------
                    Net income (loss)                     $     (6,919)            $     (275)          $    1,382
                    Percent of total revenues                    (81.2)                  (3.6)                 8.1
</TABLE>



                                      II-5


<PAGE>   15


ITEM 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                  AND RESULTS OF OPERATIONS (CONTINUED)

<TABLE>
<CAPTION>
                                                                1999                   1998                   1997
                                                                ----                   ----                   ----
                    OPERATIONS                                          (In thousands, except per share data)
                    ----------

<S>                                                        <C>                    <C>                  <C>
                    Per share data -income (loss)
                      Basic:
                        Income (loss) from
                         continuing operations             $     (1.18)           $     (0.06)         $    (0.08)
                        Income (loss) from
                         discontinued operations                   0.04                   0.02                0.30
                        Extraordinary item                         0.01
                        Cumulative effect of a
                         change in accounting
                         principle                               (0.01)
                                                            ----------             ----------           ----------
                                                           $     (1.14)           $     (0.04)         $      0.22
                                                            ==========             ==========           ==========
                      Diluted:
                        Income (loss) from
                         continuing operations             $     (1.18)           $     (0.06)         $    (0.09)
                        Income (loss) from
                         discontinued operations                   0.04                   0.02                0.30
                        Extraordinary item                         0.01
                        Cumulative effect of a
                         change in accounting
                         principle                               (0.01)
                                                            ----------             ----------           ----------
                                                           $     (1.14)           $     (0.04)         $      0.21
                                                            ==========             ==========           ==========

                  NOTE: Reference should be made to the Notes to Consolidated Financial Statements herein.
</TABLE>

                  FINANCIAL CONDITION

                  Management has been focusing the Company on an aggressive
                  expansion of its Diagnostic business, nuclear medicine and
                  advanced imaging services, including the opening of a center
                  featuring the only Positive Emission Tomography ("PET")
                  technology in central Ohio. During this expansion, the
                  Company's revenues and profitability have been adversely
                  affected by the trend in the healthcare industry toward cost
                  containment, governmental constraints and reductions in rates
                  which have put downward pressure on revenue. Additionally, the
                  Company's expansion, through a minority interest in radiation
                  oncology business, proved to be costly both from a cash and
                  profitability perspective. Such venture is currently under
                  review for possible sale or "turn-key" lease.

                  The Company, through a subsidiary, opened in June 1999 its
                  Women's Health Center on Kenny Road. This 7,500 square foot
                  center focuses on women's health and imaging services and
                  includes an outpatient surgical suite for breast surgery
                  expected to open in fourth quarter 2000. Management believes
                  that the new centers, including the Fall 2000 opening of a
                  Cyclotron center, with a partner, (providing timely isotopes
                  for the PET) should produce increased revenues that lead to an
                  increase in operating earnings.

                  The Company sold its remaining nursing home on November 30,
                  1999.

                                      II-6


<PAGE>   16


ITEM 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                  AND RESULTS OF OPERATIONS (CONTINUED)

                  FINANCIAL CONDITION (CONTINUED)
                  -------------------------------

                  As discussed in Note 9, the Company has approximately
                  $8,240,000 in net operating loss carryovers available for
                  Federal income tax purposes. Such losses expire in years
                  commencing with 2006. Management has considered the need for a
                  valuation allowance (addressing the potential realizability),
                  related to the deferred tax assets. As noted herein and in
                  Note 1, the Company has incurred significant losses and
                  negative cash flow. As a significant portion of the deferred
                  tax asset relates to net operating loss carryforwards, a
                  valuation allowance was recorded as the realization of the
                  deferred tax assets were not assessed as more likely than not.
                  Additionally, management believes that the deferred tax
                  liabilities will be recognized and offset by the existing
                  deferred tax assets prior to the expiration of the net
                  operating loss carryforwards in 2014.

                  As further discussed in Note 1, the Company's continuation as
                  a going concern is dependent upon its ability to generate
                  sufficient cash flow to meet its obligations on a timely
                  basis, to comply with the terms of its financing agreements,
                  to obtain additional financing or refinancing as may be
                  required, and ultimately to attain profitability. The Company
                  is also actively pursuing additional equity financing through
                  discussions with potential business affiliations, vendors
                  and/or customers possessing related technological and/or
                  marketing capabilities that can help it develop the new
                  markets for its currently available technology as well as its
                  new cyclotron venture, with a partner, scheduled for the Fall
                  of 2000.

                  Working capital decreased approximately $8,417,000 from
                  $476,000 at December 31, 1998 to a deficit of $7,941,000 at
                  December 31, 1999. Current assets decreased approximately
                  $584,000 due mostly from decreases in cash and restricted
                  cash, notes receivable ($230,000), and miscellaneous
                  receivables ($962,000) offset by accounts receivable trade
                  increases ($831,000). The decrease in notes and miscellaneous
                  receivables is due mostly to the collection of the notes
                  related to the sale of the two nursing homes (see Note 4). The
                  increase in accounts receivable is attributable to the
                  increases in receivables at the new diagnostic centers.
                  Current liabilities increased approximately $7,833,000 due
                  primarily to increases in long-term debt ($5,394,000) as a
                  result of reclassifications (see Note 7), accounts payable
                  ($218,000), taxes, other than federal income taxes
                  ($1,338,000), other accrued liabilities ($532,000) and notes
                  payable - officer ($225,000). Such increases were a result of
                  the expansion of facilities, operating losses and the funding
                  of the radiation oncology business which is currently under
                  review for a possible "turn-key" sale involving the entity in
                  which the Company owns a minority interest.

                  LIQUIDITY AND CAPITAL RESOURCES
                  -------------------------------

                  The Company's liquidity remains poor with a working capital
                  deficit of approximately $7,941,000 at December 31, 1999. In
                  order to address its liquidity needs during the year 2000, the
                  Company has undertaken a program to achieve a strategic
                  alliance with a major healthcare provider that would combine
                  utilization of its current facilities as well as achieve a
                  customer relationship for its new Cyclotron venture scheduled
                  for opening in the Fall of 2000 (with a partner currently in
                  the business, but not in Central Ohio). Additionally, the
                  Company is exploring financing packages that would, along with
                  the cooperation or repayment of current bond holders, provide
                  funds through the utilization of accounts receivable.
                  Separately, the Company is considering the possible sale of
                  certain centers involving the possible provision of a
                  "turn-key" sale or lease of its radiation oncology facility.
                  Although the Company is working to achieve one or more of the
                  aforementioned transactions in the near future, there can be
                  no assurance of the success of any of the possible
                  transactions.


                                      II-7


<PAGE>   17


ITEM 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                  AND RESULTS OF OPERATIONS (CONTINUED)

                  LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
                  -------------------------------------------

                  It should be further noted that as a result of the filing of
                  Chapter XI by the tenant of the Company's New Jersey facility
                  (formerly utilized by the Division that sold its assets to the
                  tenant), the Company has been seeking a new tenant or tenants
                  while satisfying a short-term "interest-only" arrangement with
                  the bank mortgage holder. A tenant for approximately 40% of
                  the space has been approved by the bank and a lease is
                  expected to be executed upon the prospective tenant's
                  contracting for the sale of its existing smaller facility.
                  Although it is anticipated that additional tenants will be
                  secured for the remainder of the property upon the initial
                  tenant's completion of approximately $200,000 of improvements,
                  no assurances can be secured that there will be success in the
                  completion of this project.

                  The Company, through a limited liability affiliate, has
                  committed to the purchase of a cyclotron (approximately
                  $1,500,000) which is being financed by a bank (through the
                  relationship of its limited liability partner).

                  Cash decreased approximately $478,000 during the year ended
                  December 31, 1999. Cash flow used in investing activities was
                  approximately $21,000 as compared to approximately $938,000
                  provided in the previous year. Significant utilization
                  occurred in advances to affiliates, net ($1,305,000),
                  increases to restricted cash ($230,000) and capital
                  expenditures ($533,000) offset primarily by collections on
                  sales of nursing home assets ($1,030,000), reductions in
                  amounts due from related parties and former affiliates
                  ($402,000) and notes receivable ($231,000) as well as the
                  proceeds from the sale of property, plant and equipment and
                  investments ($295,000) and marketable securities ($90,000).
                  Net cash of approximately $175,000 was provided by financing
                  activities. This was achieved primarily through proceeds on
                  long-term borrowings ($871,000) and borrowings from an
                  officer, net ($225,000) offset by principal payments on
                  long-term borrowings ($872,000) and purchase of treasury stock
                  ($47,000). There was a net use of funds by operating
                  activities of approximately $632,000. The net loss of
                  approximately $6,919,000 was offset primarily by amortization
                  and depreciation ($768,000) and increases to accounts payable
                  ($292,000), accrued expenses ($1,848,000), asset impairment
                  reserve ($2,082,000, see Note 12A) and forgiveness of
                  affiliate's debt ($1,745,000, see Note11I).

                  During October 1998, the Company, along with a partner,
                  completed construction of a major 31,000 square feet,
                  two-building center including radiology, nuclear medicine,
                  cytology, radiation therapy, Positron Emission Tomography (the
                  first PET scanner in Central Ohio), and a therapy and rehab
                  center. A subsidiary of the Company has a relationship of a
                  22-1/2% interest and management control and responsibility in
                  the radiation therapy, and 100% ownership in the radiology,
                  PET, and nuclear. In addition, the Company, through a
                  subsidiary, has opened its Women's Health Center in June of
                  1999, which has a focus on women's health and imaging services
                  and includes an outpatient surgical suite for breast surgery
                  expected to open in the fourth quarter 2000.

                  Management believes that, despite the financial hurdles and
                  funding uncertainties going forward, it is exploring various
                  opportunities that, if successfully funded and executed, could
                  significantly improve operating results, but no assurance can
                  be given. The continued support of the Company's vendors,
                  customers, lenders, stockholders and employees will continue
                  to be key to the Company's future success. Other than as
                  indicated above there are no further material commitments for
                  capital expenditures.



                                      II-8

<PAGE>   18


ITEM 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                  AND RESULTS OF OPERATIONS (CONTINUED)

                  YEAR 2000
                  ---------

                  A potential problem existed for all companies that relied on
                  computers as the year 2000 approached. The "Year 2000" problem
                  is the result of the past practice in the computer industry of
                  using two digits rather that four to identify the applicable
                  year. The Company addressed its Year 2000 compliance needs by
                  implementing a new accounting software and other necessary
                  applications. The Company experienced no internal problems or
                  problems with third parties in regards to the "Year 2000"
                  problem. The Company spent approximately $45,000 on software
                  and hardware to ensure Year 2000 compliance.

                  The Company's payroll system is currently not Year 2000
                  compliant. Payroll is currently being processed by its
                  previously existing software until such time as the payroll
                  system associated to its other new software can be implemented
                  (expected to be January 1, 2001). No problems have occurred as
                  a result of this continuation of the existing software.

                  RESULTS OF OPERATIONS 1999-1998
                  -------------------------------

                  It should be noted that the following analysis reflects the
                  discontinuation of the nursing home operations.

                  Consolidated revenues from operations for the year ended
                  December 31, 1999 increased approximately $875,000 or 23.5%
                  from the previous year. Net sales decreased $1,091,000 or 100%
                  while service revenues increased $1,966,000 or 74.8% from the
                  comparable period in 1998. The decline in net sales is due to
                  the sale of the remaining pharmacy in 1998 (sold in December)
                  while the service revenues increase is due mostly to: the
                  opening of two new diagnostic centers during the prior year,
                  one in February and the other in October; opening of the
                  Women's Health Center in June 1999; and increases to equipment
                  at the existing centers.

                  Cost of sales decreased approximately $837,000 or 100% for the
                  year as compared to 1998, due to the 1998 sale of the
                  Company's last remaining pharmacy.

                  Selling, general and administrative expenses increased
                  approximately $2,350,000 or 78.8% for the year ended December
                  31, 1999 from the comparable period in 1998. The increase is
                  mostly due to increases in expenses of the new Granville and
                  Jasonway diagnostic centers, the new Woman's Center. Selling,
                  general and administrative expenses at the new centers
                  contribute heavily to the costs during their initial period of
                  market development. Such costs have had a significant impact
                  to the consolidated results for the year ended December 31,
                  1999. However, management anticipates each of the centers,
                  upon reaching its operating goals, to contribute profits to
                  the Company's results of operations.

                  As a result of the acquisition of the real estate of two
                  facilities formerly owned by affiliates (non-consolidated) and
                  the additional equipment at the new diagnostic centers,
                  depreciation expense increased approximately $421,000 or
                  126.2%.

                  Reference is made to Note 17 concerning approximately
                  $4,900,000 of non-recurring items of expense in 1999,
                  including asset impairment ($2,082,000) and write-off of
                  advances ($1,745,000).

                  Interest expense for the year ended December 31, 1999
                  increased approximately $584,000 or 126.6% as compared to the
                  same period a year ago. The increase is mostly due to the debt
                  from the mortgages on two facilities acquired from
                  non-consolidated affiliates and the interest expense on
                  additional equipment at the new diagnostic centers.


                                      II-9

<PAGE>   19

ITEM 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                  AND RESULTS OF OPERATIONS (CONTINUED)

                  RESULTS OF OPERATIONS 1998-1997
                  -------------------------------

                  The analysis below appears in its original context from the
                  prior year report on Form 10-K. There have been no changes
                  reflected as a result of the 1999 reclassification of
                  discontinued operations.

                  Consolidated revenues from operations for the year ended
                  December 31, 1998 decreased approximately $9,518,000 or 55.6%
                  from the previous year. Net sales decreased $1,344,000 or
                  55.2% while service revenues declined $8,175,000 or 55.6% from
                  the comparable period in 1997. The decline in net sales is due
                  to the reduction in the number of pharmacies from three in
                  1997 to one in 1998 (sold in December) while the decrease in
                  service revenues is attributable to the sale of two nursing
                  homes at December 31, 1997. Excluding the two sold nursing
                  homes, service revenues for the year ended December 31, 1998
                  are up $,352,000 or 26.1% over last year. The increase is due
                  mostly to the opening of two new diagnostic centers during the
                  year, one in February and the other in October.

                  Cost of sales decreased approximately $983,000 or 54.0% for
                  the year as compared to 1997. Gross margins for the year ended
                  December 31, 1998 was 23.3% as compared to 25.3% in 1997. The
                  decreases are primarily due to the 1997 sale of two retail
                  pharmacies whose sales are not included in the 1998 results.

                  Selling, general and administrative expenses decreased
                  approximately $7,243,000 or 51.4% for the year ended December
                  31, 1998 from the comparable period in 1997. The decrease is
                  mostly due to the reduction in expenses caused by the sale of
                  the two nursing homes and two pharmacies offset by increases
                  in expenses of the new Granville and Jasonway diagnostic
                  centers and the expansion of mobile mammography. Selling,
                  general and administrative expenses at the new centers
                  contribute heavily to the costs during their initial period of
                  market development. Such costs have had a significant impact
                  to the consolidated results for the year ended December 31,
                  1998. However, management anticipates each of the centers,
                  upon reaching its operating goals, to contribute profits to
                  the Company's results of operations.

                  Interest expense for the year ended December 31, 1998
                  decreased approximately $522,000 or 58.5% as compared to the
                  same period a year ago. The reduction is mostly due to the
                  reduced debt for the mortgages on the two sold nursing homes
                  and the interest income earned on the notes receivable from
                  the sale of the homes offset by interest expense on additional
                  equipment at the new diagnostic centers.

ITEM 7A.          QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

                  MARKET RISK

                  The Company is exposed to various market risks, including
                  changes in foreign currency exchange rates and interest rates.
                  Market risk is the potential loss arising from adverse changes
                  in market rates and prices, such as foreign currency exchange
                  and interest rates. The Company does not enter into
                  derivatives or other financial instruments for trading or
                  speculative purposes. The Company enters into financial
                  instruments to manage and reduce the impact of changes in
                  foreign currency exchange rates and interest rates on certain
                  variable rate mortgages.


                                      II-10

<PAGE>   20


ITEM 7A.          QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
                  (CONTINUED)

                  FOREIGN EXCHANGE RATE RISK

                  The Company enters into forward foreign exchange contracts to
                  hedge the currency fluctuations on the borrowings denominated
                  in Swiss francs, thereby limiting the Company's risk that
                  would otherwise result from changes in exchange rates. As
                  these futures contracts are not for trading or speculative
                  purposes, the gains and losses on forward foreign exchange
                  contracts and the offsetting losses and gains on hedge
                  borrowings have been deferred until 2002, the maturity date of
                  the bonds being hedged. At December 31, 1999, the contract
                  amount of foreign currency forwards was $4,128,000 with an
                  average maturity of six months. The deferred loss on such
                  contracts at December 31, 1999 was approximately $541,000. A
                  10% fluctuation in exchange rates for these currencies would
                  change the fair value of the contracts by approximately
                  $413,000. However, since these contracts hedge foreign
                  currency denominated transactions, any change in the fair
                  value of the contracts would be offset by changes in the
                  underlying value of the transactions being hedged.

                  INTEREST RATES

                  The Company enters into interest rate swap agreements to
                  manage its exposure to interest rate changes on certain
                  variable rate mortgages. The swaps involve the exchange of
                  fixed and variable interest rate payments without exchanging
                  the notional principle amount. Payments or receipts on the
                  agreements are recorded as adjustments to interest expense. At
                  December 31, 1999, the Company had outstanding interest rate
                  swap agreements denominated in dollars maturing in 2020, with
                  an aggregate principle amounts approximating $2.5 million.
                  Subsequent to year end, the interest rate swap agreements were
                  terminated with the Company receiving approximately $66,000 in
                  proceeds.

                  Most of the Company's borrowings have interest rates that are
                  fixed for the duration of the loan. The Company has one
                  mortgage that is linked to the prime rate that is not
                  associated with an interest rate swap agreement. A 1% increase
                  from the prevailing prime rate at December 31, 1999 would have
                  an annual effect on interest expense to the Company of
                  approximately $13,000.

                  See Note 16 for information on the fair value of financial
                  instruments.

ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                  See the list of financial statement schedules included in Part
                  IV, Item 14 of this Form 10-K.

ITEM 9.           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND ACCOUNTING
                  AND FINANCIAL DISCLOSURE

                  None.


                                      II-11

<PAGE>   21


                      This page is intentionally left blank






                                      II-12


<PAGE>   22


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                           DECEMBER 31, 1999 AND 1998
                           --------------------------

<TABLE>
<CAPTION>
                   ASSETS                                                        1999                    1998
                   ------                                                        ----                    ----

<S>                                                                         <C>                     <C>
CURRENT ASSETS
  Cash                                                                      $        99,558         $       577,317
  Restricted cash (Note 3)                                                          460,813                 230,347
  Receivables (Note 4):
   Trade, net of allowance for doubtful accounts of
    $637,000 in 1999 and $227,000 in 1998                                         1,840,160               1,009,486
   Notes receivable - current                                                         6,076                 236,353
   Miscellaneous                                                                    233,627               1,196,056
                                                                            ---------------         ---------------
                                                                                  2,079,863               2,441,895

  Prepaid expenses and other current assets                                         191,916                 166,332
                                                                            ---------------         ---------------
        Total current assets                                                      2,832,150               3,415,891
                                                                            ---------------         ---------------




PROPERTY, PLANT AND EQUIPMENT (NOTES 2, 5 AND 7)                                 13,234,424              10,680,870
  Less accumulated depreciation and amortization                                (2,414,890)             (1,864,752)
                                                                            ---------------         ---------------
                                                                                 10,819,534               8,816,118
                                                                            ---------------         ---------------



INVESTMENTS AND OTHER ASSETS
  Securities available for sale, at market                                                -                  52,500
  Notes and other receivables, net of current portion                                64,033                 149,201
  Notes receivable from officers and related parties (Notes11B & 11C)               735,107               1,013,658
  Life insurance premiums receivable (Note 11D)                                     396,337               1,095,135
  Investments and related advances, net (Note 6)                                  3,440,171               4,663,780
  Excess of cost over assets of businesses and subsidiaries
   acquired, less accumulated amortization                                          146,569                 340,895
  Deferred hedge losses (Note 2)                                                    541,484                  40,506
  Deferred charges                                                                  177,879                 558,743
  Other assets                                                                       25,046                  71,807
                                                                            ---------------         ---------------
                                                                                  5,526,626               7,986,225
                                                                            ---------------         ---------------

        Total assets                                                        $    19,178,310         $    20,218,234
                                                                            ===============         ===============
</TABLE>




    The accompanying notes are an integral part of the financial statements.

                                      II-13


<PAGE>   23


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                           DECEMBER 31, 1999 AND 1998
                           --------------------------

<TABLE>
<CAPTION>
             LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                      1999                    1998
             ----------------------------------------------                      ----                    ----

<S>                                                                         <C>                     <C>
CURRENT LIABILITIES
  Long-term obligations classified as current (Note 7)                      $     5,881,325         $       487,535
  Accounts payable                                                                1,987,196               1,768,848
  Accrued expenses and other liabilities:
     Salaries and wages                                                             169,427                 142,862
     Taxes, other than federal income taxes                                       1,586,292                 248,041
      Interest                                                                      219,397                 120,921
      Other                                                                         704,127                 171,937
  Note payable - officer (Note 11F)                                                 225,000               -
                                                                            ---------------         ---------------
        Total current liabilities                                                10,772,764               2,940,144
                                                                            ---------------         ---------------

LONG-TERM OBLIGATIONS LESS AMOUNTS
 CLASSIFIED AS CURRENT (NOTE 7)                                                   9,324,236              11,014,477
                                                                            ---------------         ---------------

DEFERRED INCOME TAXES (NOTE 9)                                                            -                 132,300
                                                                            ---------------         ---------------

        Total liabilities                                                        20,097,000              14,086,921
                                                                            ---------------         ---------------

MINORITY INTERESTS                                                                  433,900                 611,390
                                                                            ---------------         ---------------

CONTINGENCIES AND COMMITMENTS (NOTES 6, 7, 8 AND 12)

STOCKHOLDERS' EQUITY (DEFICIT) (NOTES 1 AND 10)
  Preferred stock, $10 stated value, authorized 500,000
   shares, issued, none                                                                   -                       -
  Common stock, $.01 par, authorized 12,000,000 shares;
   issued 8,280,807 and 8,248,480 shares in 1999 and 1998                            82,808                  82,485
  Capital in excess of par                                                       10,261,735              10,260,927
  Unrealized losses on securities available for sale,
   net of tax                                                                            -                  (83,709)
  Retained deficit                                                              (8,931,297)              (2,012,237)
                                                                            ---------------         ---------------
                                                                                  1,413,246               8,247,466
  Treasury stock, at cost, 2,211,451 shares in 1999 and
   2,179,301 shares in 1998                                                      (2,765,836)             (2,727,543)
                                                                            ---------------         ---------------
                                                                                 (1,352,590)              5,519,923
                                                                            ---------------         ---------------

        Total liabilities and stockholders' equity (deficit)                $    19,178,310         $    20,218,234
                                                                            ===============         ===============
</TABLE>



    The accompanying notes are an integral part of the financial statements.

                                      II-14


<PAGE>   24


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                  YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
                  --------------------------------------------



<TABLE>
<CAPTION>
                                                                   1999               1998               1997
                                                                   ----               ----          -    ----
<S>                                                                <C>                 <C>               <C>
REVENUES
  Net sales                                                 $              -    $      1,091,351  $      2,435,334
  Service income                                                   4,593,619           2,627,286         1,266,293
                                                            ----------------    ----------------  ----------------
                                                                   4,593,619           3,718,637         3,701,627
                                                            ----------------    ----------------  ----------------

COSTS AND EXPENSES
  Cost of sales                                                            -             836,899         1,820,352
  Selling, general and administrative expenses                     5,331,646           2,982,032         2,481,982
  Depreciation                                                       753,863             333,344           150,134
  Non-recurring items (Note 17)                                    4,869,579                   -                 -
                                                            ----------------    ----------------  ----------------
                                                                  10,955,088           4,152,275         4,452,468
                                                            ----------------    ----------------  ----------------

OPERATING LOSS                                                    (6,361,469)           (433,638)         (750,841)
                                                            ----------------    ----------------  ----------------

OTHER INCOME (EXPENSE)
  Minority interests in affiliates, net of tax                       165,728             (62,288)         (102,393)
  Equity in earnings (losses) of affiliates (Note 6)                (163,483)            (20,100)          348,206
  Interest expense, net (Notes 4 and 7)                           (1,045,843)           (461,537)         (307,344)
  Gain on sale of assets (Notes 2C and 7)                             60,752             421,807                 -
  Other, net                                                           6,632             106,762             6,045
                                                            ----------------    ----------------  ----------------
                                                                    (976,214)            (15,356)          (55,486)
                                                            ----------------    ----------------  ----------------

LOSS BEFORE INCOME TAXES                                          (7,337,683)           (448,994)         (806,327)

INCOME TAX BENEFIT (NOTE 9)                                          175,400              74,909           333,500
                                                            ----------------    ----------------  ----------------
NET LOSS FROM CONTINUING
 OPERATIONS                                                       (7,162,283)           (374,085)         (472,827)

INCOME (LOSS) FROM DISCONTINUED
OPERATIONS, NET OF TAX AND
MINORITY INTEREST (NOTE 2B)                                          (64,727)             99,331           649,295

GAIN ON DISPOSAL OF DISCONTINUED
OPERATIONS, NET OF TAX AND
MINORITY INTEREST (NOTE 2B)                                          275,774                   -         1,205,145
                                                            ----------------    ----------------  ----------------
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM AND CUMULATIVE EFFECT OF A
CHANGE IN ACCOUNTING PRINCIPLE                                   (6,951,236)           (274,754)         1,381,613
</TABLE>




    The accompanying notes are an integral part of the financial statements.

                                      II-15

<PAGE>   25

         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                  YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
                  --------------------------------------------


<TABLE>
<CAPTION>
                                                                     1999               1998               1997
                                                                     ----               ----               ----

<S>                                                            <C>                   <C>               <C>
EXTRAORDINARY GAIN ON
FORGIVENESS OF DEBT, NET OF
TAX AND MINORITY INTEREST (NOTES 5, 6 AND 17)                       337,088                    -                  -

CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE,  NET OF TAX
AND MINORITY INTEREST (NOTE 18)                                     (304,912)                  -                  -
                                                               -------------         -----------       ------------
NET INCOME (LOSS)                                              $  (6,919,060)        $  (274,754)      $  1,381,613
                                                               =============         ===========       ============

INCOME (LOSS) PER COMMON SHARE  (NOTE 2)
  Basic:
    Income (loss) from continuing operations                   $       (1.18)        $     (0.06)      $      (0.08)
    Income (loss) from discontinued operations                          0.04                0.02               0.30
    Extraordinary item                                                  0.01                   -                  -
    Cumulative effect of a change in accounting principle              (0.01)                  -                  -
                                                               -------------         -----------       ------------
                                                               $       (1.14)        $     (0.04)      $       0.22
                                                               =============         ===========       ============

  Diluted:
    Income (loss) from continuing operations                   $       (1.18)        $     (0.06)      $      (0.09)
    Income (loss) from discontinued operations                          0.04                0.02               0.30
    Extraordinary item                                                  0.01                   -                  -
    Cumulative effect of a change in accounting principle              (0.01)                  -                  -
                                                               -------------         -----------       ------------
                                                               $       (1.14)        $     (0.04)      $       0.21
                                                               =============         ===========       ============

WEIGHTED AVERAGE SHARES OUTSTANDING
  Basic                                                            6,059,464           6,113,646          6,224,241
                                                               =============         ===========       ============
  Diluted                                                          6,059,464           6,113,646          6,916,241
                                                               =============         ===========       ============
</TABLE>


    The accompanying notes are an integral part of the financial statements.

                                      II-16

<PAGE>   26

         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

                  YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
                  --------------------------------------------


                                         1999            1998             1997
                                         ----            ----             ----

NET INCOME (LOSS)                 $  (6,919,060)   $   (274,754)   $   1,381,613


UNREALIZED INCOME (LOSS) ON
 SECURITIES AVAILABLE FOR SALE,
 NET OF TAX                              24,549         (83,709)               -


RECLASSIFICATION ADJUSTMENT
 FOR SECURITIES LOSSES INCLUDED
 IN NET LOSS, NET OF TAX                 59,160               -                -
                                  -------------    ------------    ------------

COMPREHENSIVE INCOME (LOSS)       $  (6,835,351)   $   (358,463)   $   1,381,613
                                  =============    ============    ============


    The accompanying notes are an integral part of the financial statements.

                                      II-17


<PAGE>   27


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

                  YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
                  --------------------------------------------



<TABLE>
<CAPTION>
                                                                 CAPITAL      UNREALIZED    RETAINED
                                                   COMMON       IN EXCESS      LOSS ON      EARNINGS       TREASURY
                                                    STOCK        OF PAR       SECURITIES    (DEFICIT)       STOCK          TOTAL
                                                   -------    ------------    ----------   -----------   -----------    -----------

<S>                                                <C>        <C>             <C>           <C>           <C>             <C>
BALANCE AT DECEMBER 31, 1996                       $82,435    $10,238,750     $-           $(3,119,096)  $(2,460,059)   $ 4,742,030

  Shares contributed to Retirement Plan
     (6,306 shares)                                                 1,730                                     7,728          9,458

  Treasury stock acquired (66,100 shares)                                                                   (92,350)       (92,350)

  Stock options exercised (5,000 shares)               50           4,325                                                    4,375

  Net income                                                                                 1,381,613                    1,381,613
                                                   -------    -----------     ---------    -----------   -----------    -----------

BALANCE AT DECEMBER 31, 1997                        82,485     10,244,805                   (1,737,483)   (2,544,681)     6,045,126

  Shares contributed to Retirement Plan                               180                                    11,636         11,816
  (9,453 shares)

  Treasury stock acquired (321,500 shares)                                                                 (443,547)      (443,547)

  Sale of treasury shares (200,000 shares)                         15,942                                   249,049        264,991
  (Note 9)

  Unrealized loss on investments available
   for sale of $126,809, net of tax of $43,100                                 (83,709)                                    (83,709)

  Net loss                                                                                    (274,754)                    (274,754)
                                                   -------    -----------     ---------    -----------   -----------    -----------

BALANCE AT DECEMBER 31, 1998                        82,485     10,260,927      (83,709)     (2,012,237)   (2,727,543)     5,519,923

  Shares contributed to Retirement Plan
     (7,850 shares)                                                   444                                     9,199          9,643

  Stock options exercised by common stock
   exchanging (31,327 shares, net)                    313            (313)

  Stock options exercised for cash (1,000 shares)      10             677                                                      687

  Treasury stock acquired (39,500 shares)                                                                   (47,492)       (47,492)

  Reversal of unrealized loss on investments
   available for sale due to sale of investment                                 83,709                                      83,709

  Net loss                                                                                  (6,919,060)                  (6,919,060)
                                                   -------    ------------    ---------    -----------   -----------    -----------

BALANCE AT DECEMBER 31, 1999                       $82,808    $ 10,261,735    $ -          $(8,931,297)  $(2,765,836)   $(1,352,590)
                                                   =======    ============    =========    ===========   ===========    ===========
</TABLE>


    The accompanying notes are an integral part of the financial statements.

                                      II-18

<PAGE>   28



         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                  YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
                  --------------------------------------------


<TABLE>
<CAPTION>
                                                                   1999                 1998               1997
                                                                   ----                 ----               ----
<S>                                                          <C>                  <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income (loss)                                          $    (6,919,060)     $     (274,754)   $    1,381,613
                                                             ---------------      --------------    --------------
  Adjustments required to reconcile net income
   (loss) to net cash provided by operating
    activities:
     (Income) loss from discontinued operations                       67,553            (105,815)         (996,078)
     (Gain) on sale of discontinued operations                      (275,774)           -               (1,778,007)
     Amortization, depreciation and other, net                       768,479             370,383           140,591
     Provision for losses on notes and accounts
      receivable                                                     203,643              57,344            46,193
     Provision for deferred income taxes                            (132,300)            (87,200)          516,300
     (Gain) loss on sale of other assets                             (60,752)           (418,355)          (99,038)
     Minority interest in earnings (losses) of                      (163,483)             68,772           128,038
     affiliates
     Equity in (earnings) losses of affiliates                       280,487              20,100          (348,206)
     Extraordinary (gain) on debt forgiveness                       (392,556)           -                  -
     Cumulative effect of accounting change                          238,082            -                  -
     Asset impairment reserve                                      2,081,197            -                  -
     Provision for losses on receivable due from
      related parties                                                418,563            -                  -
     Life insurance reserve                                          321,500            -                  -
     Forgiveness of debt to affiliates                             1,744,694            -                  -
     Changes in assets and liabilities:
      Receivables:
        Sale (purchase) of receivables                               -                  -                 (269,176)
        Other changes                                               (608,905)           (665,926)          902,484
      Prepaid expenses and other current assets                       (7,865)            101,484           274,392
      Accounts payable                                               292,077            (307,078)          310,640
      Accrued expenses and other liabilities                       1,847,890             127,811          (736,937)
      Federal income taxes payable                                   -                   (40,000)           40,000
      Deferred charges and other                                    (522,544)            (55,740)           110,967
                                                             ---------------      --------------    --------------
      Cash provided by (utilized in) continuing
       operations                                                   (819,074)         (1,208,974)          (376,224)
      Cash provided by (utilized in) discontinued
       operations                                                    187,262              38,509           (538,678)
                                                             ---------------      --------------    --------------
         Net cash used in operating activities                      (631,812)         (1,170,465)           914,902
                                                             ---------------      --------------    --------------
</TABLE>


    The accompanying notes are an integral part of the financial statements.

                                      II-19


<PAGE>   29


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
                  --------------------------------------------


<TABLE>
<CAPTION>
                                                                   1999               1998               1997
                                                                   ----               ----               ----
<S>                                                              <C>                 <C>               <C>
CASH FLOWS FROM INVESTING ACTIVITIES
  Proceeds (purchase) of marketable securities                       89,748            (179,309)          -
  Investment and advances to affiliates, net                     (1,305,309)         (1,661,349)       (1,892,782)
  Collection on sale of nursing homes assets                      1,030,073           2,923,794           750,000
  Proceeds from sale of other property, plant and
   equipment and investments                                        294,811             425,000           115,500
  Decrease (increase) in notes receivable                           231,153            (102,936)         (170,911)
  Disbursements to related parties and
   former affiliates, net                                           402,032            (145,880)          (62,669)
  Deposit to restricted cash                                       (230,466)             (9,227)         (104,882)
  Capital expenditures                                             (532,626)           (312,460)         (446,027)
                                                                 ----------          ----------        ----------
         Net cash provided by (used) in investing activities        (20,584)             937,633       (1,811,771)
                                                                 ----------          ----------        ----------

CASH FLOWS FROM FINANCING ACTIVITES
  Distributions to limited partners, net                            -                  -                  143,842
  Purchase of common stock of subsidiary                             (3,000)           -                  (85,730)
  Proceeds from sale of treasury stock                              -                   264,991           -
  Treasury stock purchased                                          (47,492)           (443,547)          (92,350)
  Proceeds from officer obligation                                  446,000              50,000            90,000
  Principal payments of officer obligation                         (221,000)            (50,000)         (145,000)
  Proceeds from warrants and options exercised                          687           -                     4,375
  Principal payments on long-term obligations                      (871,770)           (442,706)         (666,130)
  Proceeds from borrowing on long-term obligations                  871,212             806,302         3,604,934
  Net payments to securitization program                            -                  -                 (392,287)
                                                                 ----------          ----------        ----------
        Net cash provided by financing activities                   174,637             185,040         2,461,654
                                                                 ----------          ----------        ----------

NET INCREASE (DECREASE) IN CASH                                    (477,759)            (47,792)         (265,019)

CASH - BEGINNING OF PERIOD                                          577,317             625,109           890,128
                                                                 ----------          ----------        ----------

CASH - END OF PERIOD                                           $     99,558       $     577,317     $     625,109
                                                                 ==========          ==========        ==========
SUPPLEMENTAL DISCLOSURES OF
 CASH FLOW INFORMATION
  Cash paid during the years for:
    Interest, net of interest income                           $    991,272       $     336,297     $     917,105
    Income taxes paid (received)                               $    (35,611)      $      95,037     $      43,816

Supplemental Disclosures of Noncash
 Investing and Financing Activity (Note 15)
</TABLE>


    The accompanying notes are an integral part of the financial statements.

                                      II-20

<PAGE>   30


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1.           BUSINESS CONTINUATION

                  The accompanying financial statements have been prepared on a
                  going concern basis, which contemplates the realization of
                  assets and the satisfaction of liabilities in the normal
                  course of business. As shown in the financial statements
                  during the years ended December 31, 1999 and 1998, the Company
                  incurred losses of $6,919,000 and $275,000, respectively, and
                  has classified a significant portion of its debt as current
                  for the year ended December 31, 1999. These factors among
                  others may indicate that the Company will be unable to
                  continue as a going concern for a reasonable period of time.

                  The financial statements do not include any adjustments
                  relating to the recoverability and classification of assets
                  that might be necessary should the Company be unable to
                  continue as a going concern.

                  Management has been focusing the Company on an aggressive
                  expansion of its diagnostic imaging services, including the
                  opening of a center featuring the only Positive Emission
                  Tomography ("PET") technology in central Ohio. During this
                  expansion, the Company's revenues and profitability have been
                  adversely affected by the trend in the healthcare industry
                  toward cost containment, governmental constraints and
                  reductions in rates which have put downward pressure on
                  revenue. Additionally, the Company's expansion, through a
                  minority interest in a radiation oncology business, proved to
                  be costly both from a cash and profitability perspective. The
                  continuity of such venture is currently under review for
                  possible sale or "turn-key" lease.

                  The Company's continuation as a going concern is dependent
                  upon its ability to generate sufficient cash flow to meet its
                  obligations on a timely basis, to comply with the terms of its
                  financing agreements, to obtain additional financing or
                  refinancing as may be required, and ultimately to attain
                  profitability. The Company is also actively pursuing
                  additional equity financing through discussions with business
                  affiliations, vendors and/or customers possessing related
                  technological and/or marketing capabilities that can help it
                  develop the new markets for its currently available technology
                  as well as its new cyclotron venture, with a partner,
                  scheduled for the Fall of 2000.

NOTE 2.           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL

        A.        PRINCIPLES OF CONSOLIDATION AND EQUITY METHOD OF ACCOUNTING
                  -----------------------------------------------------------

                  The accompanying consolidated financial statements include the
                  accounts of The Wendt-Bristol Health Services Corporation, its
                  wholly-owned subsidiaries and the majority-owned and
                  controlled subsidiary, Wendt-Bristol Diagnostics Company
                  (WBDC), all of which are consolidated herein and referred to
                  as the "Company". The Company through a wholly-owned
                  subsidiary owns approximately 86% of WBDC at December 31,
                  1999, 1998 and 1997. All material intercompany accounts and
                  transactions have been eliminated in consolidation.

                  Investments in 22 1/2 to 50 percent owned affiliates
                  significantly influenced by management are accounted for by
                  the equity method of accounting, whereby the investment is
                  carried at cost of acquisition plus the Company's equity in
                  undistributed earnings or losses since acquisition. Reserves
                  are provided where management determines the investment,
                  advances or equity in earnings is not realizable. Investments
                  accounted for under the equity method include limited
                  liability companies, a limited partnership in which a
                  subsidiary is general partner and a C corporation (see Note
                  6).


                                      II-21

<PAGE>   31

         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2.           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL
                  (CONTINUED)

        B.        DISCONTINUED OPERATIONS
                  -----------------------

                  On December 31, 1997, the Company sold all of the operating
                  assets of two of its three nursing homes for a purchase price
                  of $9.9 million.

                  On November 30, 1999, the Company sold the operating assets of
                  its remaining nursing home for a purchase price of $1.15
                  million.

                  Components of amounts reflected in the "Consolidated Statement
                  of Operations" and "Consolidated Balance Sheets" as
                  discontinued operations are as follows:

<TABLE>
<CAPTION>
                                                                                 (in 000's)
                                                                  1999                1998              1997
                                                                  ----                ----              ----
<S>                                                        <C>              <C>                 <C>
                    Income Statement Data (1)
                    -------------------------
                      Revenues                             $          3,925 $             3,894 $         13,429
                      Operating income (loss)                          (93)                (11)            1,612
                      Gain on disposal                                  276            -                   1,778
                      Net income                                        208                 106            2,774
</TABLE>

<TABLE>
<CAPTION>
                                                                         (in 000's)
                                                                  1999                1998
                                                                  ----                ----
<S>                                                        <C>              <C>
                    Balance Sheet Data
                    ------------------
                      Current assets                       $            808 $               956
                      Property, plant and equipment                 -                       313
                      Other assets                                        1                  67
                      Current liabilities                           (1,849)             (1,519)
                      Long-term liabilities                         -                      (37)
                      Advances to affiliates                          7,101               6,073
                                                                   --------            --------
                      Net assets                                      6,061               5,853
                      Less:  advances eliminated in
                                consolidation                       (7,275)             (6,246)
                                                                   --------            --------

                    Net liabilities of discontinued
                     operations                            $        (1,214) $             (393)
                                                                   ========            ========

                      (1) Income statement data is shown gross (no minority interest or income taxes have
                          been deducted from these amounts)
</TABLE>

        C.        ACQUISITIONS AND DISPOSITIONS OF PARTNERSHIP INTERESTS OR
                  OWNERSHIP INTERESTS
                  ---------------------------------------------------------

                  During December 1996, WBDC formed Wendt-Bristol Crosswoods,
                  Ltd. a limited liability company ("LLC") in which the Company
                  has a 50% membership interest. Operations of this diagnostics
                  center began in January 1997 with an open MRI and was expanded
                  to include helical CT and additional modalities.


                                      II-22

<PAGE>   32


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2.           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL
                  (CONTINUED)

        C.        ACQUISITIONS AND DISPOSITIONS OF PARTNERSHIP INTERESTS OR
                  OWNERSHIP INTERESTS (CONTINUED)
                  ---------------------------------------------------------

                  During 1997, WBDC acquired a 22.5% membership interest in
                  Wendt-Bristol at Park Oncology Center, Ltd. (an LLC), a
                  venture that was formed to own and operate a radiation therapy
                  center. Operations began during the fourth quarter 1997.
                  Effective April 1, 1998, the Company exchanged its interest in
                  this LLC for the same ownership interest in a C corporation,
                  Wendt-Bristol Oncology Centers, Inc. which now owns 100% of
                  the LLC. In October 1998, operations were added at a second
                  facility which was closed in June 2000.

                  During 1997, WBDC acquired a 50% membership interest in
                  Jasonway, Ltd. (an LLC), a venture that was formed to
                  construct and rent a medical and office complex. Construction
                  was completed in the third quarter 1998. During the fourth
                  quarter 1998, WBDC sold its 50% membership interest resulting
                  in a gain of approximately $422,000 which is included in the
                  1998 "Consolidated Statement of Operations".

                  During 1997, the Company ceased to operate its home health
                  care services. Loss from operations approximated $91,000 for
                  the year ended December 31, 1997, which is included in the
                  "Consolidated Statements of Operations".

                  During the fourth quarter 1998, the Company sold its remaining
                  pharmacy to a competitor for $30,000 plus the cost of the
                  inventory.

                  During 2000, WBDC formed Positron Isotopes, LLC, a limited
                  liability company, in which the Company currently has a 50%
                  membership interest. Operations of a manufacturing facility
                  for radioactive isotopes is expected to begin in fourth
                  quarter 2000. The operations will be in a building adjacent to
                  Jasonway Diagnostic Center.

        D.        STATEMENT OF CASH FLOWS
                  -----------------------

                  For purposes of the statement of cash flows, the Company
                  considers all highly liquid debt investments purchased with a
                  maturity of three months or less to be cash. No such
                  investments were purchased during 1999, 1998 or 1997.

        E.        CONCENTRATIONS OF CREDIT RISK
                  -----------------------------

                  Credit risk associated with cash balances in excess of
                  federally-insured amounts is minimized by using several
                  accounts at major financial institutions.

        F.        ACCOUNTS RECEIVABLE
                  -------------------

                  Certain receivables from the Company's medical services
                  segment which include diagnostic and oncology centers are due
                  from third party payors, including Medicare, Medicaid and
                  commercial insurance carriers, under contractual arrangements
                  by which payment may be at a discount from billed charges, as
                  is customary within the health care industry. The Company
                  estimates and records allowances for such discounts to
                  recognize revenues net of the contractual allowance when the
                  service income is earned based on amounts expected to be
                  recovered.


                                      II-23


<PAGE>   33


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 2.           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL
                  (CONTINUED)

        F.        ACCOUNTS RECEIVABLE (CONTINUED)
                  -------------------------------

                  A significant portion of the income that was earned by the
                  nursing home is related to services provided to Medicaid
                  patients. The income reported for the nursing homes is based
                  on cost reports filed with the State of Ohio and such reports
                  are subject to audit and adjustment by Medicaid auditors.
                  Management estimates and records adjustments to recognize
                  service income based on amounts expected to be recovered when
                  the service income is earned.


        G.        PROPERTY, PLANT AND EQUIPMENT
                  -----------------------------

                  Property, plant and equipment are stated at cost. Depreciation
                  for financial reporting purposes is computed using principally
                  the straight-line method over the estimated useful lives of
                  the related assets. Leasehold improvements are amortized over
                  the primary lease term or the life of the related improvement,
                  whichever period is shorter. Expenditures for major renewals
                  and betterments that extend the useful lives of property,
                  plant and equipment are capitalized. Expenditures for
                  maintenance and repairs are charged to operations as incurred.

                  Long-lived assets held and used by the Company are reviewed
                  for impairment whenever events or changes in circumstances
                  indicate that the carrying amount of an assets may not be
                  recoverable. For purposes of evaluating the recoverability of
                  long-lived assets, the recoverability test is performed using
                  undiscounted net cash flows. There were no such impairment
                  adjustments at December 31, 1998 and 1997. The Company
                  recognized a charge to income for an impairment adjustment of
                  approximately $1,751,000 for the year ended December 31, 1999
                  (see Notes 5 and 12A).

        H.        EXCESS OF COST OVER ASSETS OF BUSINESSES AND SUBSIDIARIES
                  ACQUIRED
                  ---------------------------------------------------------

                  Costs of acquired businesses in excess of the value of net
                  assets (i.e., goodwill) are amortized over periods ranging
                  from 20 to 40 years, except for goodwill associated with the
                  manufacturing real estate, which is being amortized over the
                  estimated remaining life of the building. During the fourth
                  quarter of 1997, the Company deducted the remaining goodwill
                  of approximately $189,000 associated to its interest in a
                  nursing home to reduce the gain on the sale of the nursing
                  homes. Amortization expense excluding this one-time adjustment
                  for the years ended December 31, 1999, 1998, and 1997,
                  approximated $3,500, $14,500 and $28,400, respectively.
                  Accumulated amortization at December 31, 1999, 1998 and 1997,
                  was $46,300, $166,200, and $151,700, respectively. Goodwill
                  consists of an amount applicable to the manufacturing real
                  estate (see Note 17 for impairment adjustment) and the
                  purchase of common shares of Diagnostics Company.

                  The Company periodically evaluates the recoverability of
                  intangibles resulting from business acquisitions and measures
                  the amount of impairment, if any, by assessing current and
                  future levels of income and cash flows as well as other
                  factors, such as business trends and prospects and market and
                  economic conditions. There were no such impairment adjustments
                  at December 31, 1998, 1997. The Company recognized a charge to
                  income for an impairment of goodwill associated with the
                  manufacturing real estate of approximately $185,000 for the
                  year ended December 31, 1999 (see Notes 5, 12A and 17)


                                      II-24


<PAGE>   34


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 2.           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL
                  (CONTINUED)

        I.        DEFERRED CHARGES
                  ----------------

                  The Company has included in deferred charges costs that are
                  being amortized over future periods ranging from 5 to 11
                  years. Deferred charges are predominantly costs associated
                  with financing, costs incurred for staff training, opening new
                  facilities and a rent adjustment to properly recognize rental
                  income on the leased manufacturing facility. Effective January
                  1, 1999, the Company changed its method of accounting for
                  start-up including staff training and opening new facilities
                  (see Note 18). Additionally, the rent adjustment was charged
                  to expense in 1999 (see Notes 5, 12A and 17).

        J.        ESTIMATES
                  ---------

                  The preparation of financial statements in conformity with
                  generally accepted accounting principles requires management
                  to make estimates and assumptions that affect the reported
                  amounts of assets and liabilities and disclosure of contingent
                  assets and liabilities at the date of the financial statements
                  and the reported amounts of revenues and expenses during the
                  reporting period. Actual results could differ from these
                  estimates.

        K.        INCOME (LOSS) PER SHARE
                  -----------------------

                  Per share amounts were computed using the weighted average
                  number of shares outstanding during each period for basic
                  which was adjusted for the effect of dilutive potential common
                  shares in the computation of diluted EPS. (See Note 10)

        L.        INCOME TAXES
                  ------------

                  The Company utilizes the liability method of accounting for
                  income taxes. Deferred income taxes reflect the net tax
                  effects of temporary differences between the carrying amounts
                  of assets and liabilities for financial reporting purposes and
                  the amounts used for income taxes, and are measured using the
                  enacted tax rates and laws that will be in effect or expected
                  to continue in effect when the differences are expected to
                  reverse. (See Note 9)

        M.        FINANCIAL INSTRUMENTS AND FAIR VALUE
                  ------------------------------------

                  The estimated fair value of amounts reported in the financial
                  statements have been determined using available market
                  information and valuation methodologies, as applicable (see
                  Note 16).

                  The Company enters into foreign currency contracts and
                  interest rate swaps in order to reduce the impact of certain
                  foreign currency fluctuations and changes in interest rates.
                  The Company does not enter into financial instruments for
                  trading or speculative purposes. Gains and losses related to
                  qualifying hedges, measured by quoted market prices,
                  termination values or other methods of firm commitments are
                  deferred and are recognized as income or as adjustments of
                  carrying amounts when the hedged transaction occurs, except
                  that losses not expected to be recovered upon the completion
                  of the hedged transactions are expensed (see Note 1O). At
                  December 31, 1999 and 1998, the Company has deferred
                  approximately $541,000 and $40,000 on the foreign currency
                  hedges which would reduce cash outflow if the related debt was
                  due.


                                      II-25

<PAGE>   35


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 2.           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL
                  (CONTINUED)

        N.        STOCK BASED COMPENSATION
                  ------------------------

                  The Company utilizes the provisions of Accounting Principles
                  Board ("APB") No. 25, "Accounting for Stock Issued to
                  Employees" which utilizes the intrinsic value based method.
                  The Financial Accounting Standards Board ("FASB") Statement
                  No. 123, "Accounting for Stock-Based Compensation", which
                  utilizes a fair value based method. The FASB requires
                  disclosure for new employee stock options of the impact to the
                  financial statements of utilizing the intrinsic value versus
                  the fair value based method (see Note 10).

        O.        ACCOUNTING PRONOUNCEMENTS FOR 2000 AND LATER
                  --------------------------------------------

                  Effective for fiscal years beginning after June 15, 2000, FASB
                  Statement No. 133 "Accounting for Derivative Instruments and
                  Hedging Activities", as amended, requires the recording of
                  deferred gains or losses on foreign currency hedge
                  transactions for the effective portion of the cash flow hedge
                  as a component of comprehensive income and reclassifies into
                  earnings in the same period as the hedged forecasted
                  transaction affects earnings. At December 31, 1999 and 1998,
                  the Company has deferred approximately $541,000 and $40,500 of
                  losses on the foreign currency hedges ($357,000 and $27,000
                  net of tax, respectively).

                  In December 1999, the Securities and Exchange Commission
                  issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue
                  Recognition in Financial Statements." The guidance in SAB 101
                  must be adopted during the fourth quarter of fiscal 2000 and
                  the effects, if any, are required to be recorded through a
                  retroactive, cumulative-effect adjustment as of the beginning
                  of the fiscal year, with a restatement of all prior interim
                  quarters in the year. Management has not completed its
                  evaluation of the effects, if any, that SAB 101 will have on
                  its income statement presentation, operating results, or
                  financial position.

        P.        FINANCIAL STATEMENT RESTATEMENT AND RECLASSIFICATIONS
                  -----------------------------------------------------

                  Certain prior year amounts have been reclassified to conform
                  to current year classifications, including the
                  reclassification to "Discontinued Operations" of the results
                  of operations of the nursing home segment.

NOTE 3.           RESTRICTED CASH

                  The Company has restricted cash of $460,813 and $230,347 at
                  December 31, 1999 and 1998, respectively. The amounts in a
                  bank trust account were $134,563 and $129,044 at December 31,
                  1999 and 1998, respectively. These restricted assets were set
                  aside to satisfy the New Jersey Department of Environmental
                  Protection and Energy in connection with the reimbursement of
                  clean-up expenses at the leased manufacturing facility located
                  in Passaic, New Jersey. (See Item 2. Properties and Note 12A.)
                  At December 31, 1999, the remaining balance of $326,250
                  represents funds in an escrow account from the State of Ohio
                  for the November 1999 reimbursement of Medicaid billings for
                  residents of the nursing home sold on November 30, 1999. The
                  funds were released from escrow on June 1, 2000. At December
                  31, 1998, the remaining balance of $101,303 was funds in a
                  brokerage margin account that was maintained related to the
                  foreign exchange futures contracts.


                                      II-26

<PAGE>   36


           WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



NOTE 4.           RECEIVABLES

                  The following schedule states current receivables by specific
                  groups as indicated at December 31:

<TABLE>
<CAPTION>
                                                                        1999                    1998
                                                                        ----                    ----
<S>                                                                  <C>                      <C>
                      Receivables:
                        Trade (net of allowance for doubtful
                         accounts)                                   $   1,840,160            $  1,009,486
                                                                     -------------            ------------
                      Notes receivable - current:
                        Sale of LLC ownership interest (a)               -                         225,000
                        Others                                               6,076                  11,353
                                                                     -------------            ------------
                      Total                                                  6,076                 236,353
                                                                     -------------            ------------

                      Miscellaneous receivables:
                        Medicare settlements                                72,700                 151,838
                        Pharmacy sale (b)                                -                         111,814
                        Consulting agreement (c)                         -                         251,250
                        Others - (d)                                       160,927                 681,154
                                                                     -------------            ------------
                      Total                                                233,627               1,196,056
                                                                     -------------            ------------
                      Total current receivables                      $   2,079,863            $  2,441,895
                                                                     =============            ============
</TABLE>

                  (a)      The balance consists of a note receivable from the
                           sale of a subsidiary's interest in an LLC (see Note
                           2C) due in June 1999. The amount was paid in full.

                  (b)      The balance consists of the amount due from a third
                           party pertaining to the pharmacy sold in December
                           1998 (see Note 2C). The amount was collected in full
                           in January 1999.

                  (c)      Amount relates to a consulting agreement which was
                           paid in full in 1999.

                  (d)      The balance consists mostly (approximately $-0- and
                           $431,000 in 1999 and 1998, respectively) of a
                           receivable due from the former owner of two of the
                           nursing homes regarding final collection of the
                           purchase price of the transaction. The receivable was
                           collected in full when the remaining nursing home was
                           sold November 30, 1999.

                  Total interest income for the years ended December 31, 1999,
                  1998 and 1997, amounted to approximately $62,000, $240,000,
                  and $175,000, respectively of which approximately $24,000,
                  $104,000 and $34,000 has been allocated to discontinued
                  operations. Interest income is netted against interest expense
                  in the accompanying Consolidated Statements of Operations. See
                  Note 11 for related party interest income.


                                      II-27


<PAGE>   37


           WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 5.           PROPERTY, PLANT AND EQUIPMENT

                  Property, plant and equipment at December 31, 1999 and 1998
                  and the estimated useful lives used in computing depreciation
                  are as follows:

<TABLE>
<CAPTION>
                                                                                                     ESTIMATED
                                                                    DECEMBER 31,                   USEFUL LIVES
                                                                    ------------
                                                             1999                   1998            (IN YEARS)
                                                             ----                   ----            ----------
<S>                                                        <C>                  <C>                     <C>
                    Land and improvements                  $  1,252,764         $    1,209,773          30
                    Buildings and improvements                5,717,610              3,825,650         3-40
                    Machinery and equipment                   6,264,050              5,645,447         3-14
                                                           ------------         --------------
                                                             13,234,424             10,680,870
                    Accumulated depreciation
                     and amortization                        (2,414,890)            (1,864,752)
                                                           ------------         --------------
                                                           $ 10,819,534         $    8,816,118
                                                           ============         ==============
</TABLE>


                  In April 1999, WBDC purchased land and buildings approximating
                  $3,746,000 at net book value from equity affiliates (see Note
                  11H).

                  Included in property, plant and equipment at December 31, 1999
                  and 1998 are land, buildings and improvements of $2,812,460
                  and $4,540,556 with accumulated depreciation and amortization
                  of $1,377,081 and $1,285,373, respectively, leased to the
                  purchaser of its former manufacturing division. In the fourth
                  quarter 1999, an asset impairment charge was estimated of
                  approximately $1,751,000 and recorded in the Consolidated
                  Statement of Operations (see Note 12A).

                  Depreciation expense for the years ended December 31, 1999,
                  1998 and 1997 was $794,452, $375,031, and $359,636,
                  respectively, of which approximately $40,000, $42,000 and
                  $209,000 has been allocated to discontinued operations.

NOTE 6.           EQUITY IN AFFILIATES

                  WBDC is accounting for the following entities under the equity
                  method of accounting: Wendt-Bristol Diagnostics LP, a limited
                  partnership of which WBDC is the general partner ("Diagnostics
                  LP"); Wendt-Bristol Crosswoods, Ltd., a limited liability
                  company of which WBDC is a 50% member ("Crosswoods"),
                  Wendt-Bristol Oncology Centers, Inc., a C corporation of which
                  WBDC owns 22.5% ("Oncology"), and Jasonway Partners, Ltd., a
                  limited liability company of which WBDC was a 50% member until
                  December 31, 1998 when the investment was sold.

                  Diagnostics LP operates a diagnostic center featuring magnetic
                  resonance imaging device ("MRI"), CT Scan, Sonography and
                  other modalities. Crosswoods is a diagnostic center acquired
                  in January 1997 with an MRI and has expanded with additional
                  modalities. Oncology operates radiation therapy practices
                  which began operations in one location in fourth quarter 1997
                  and in a second location in fourth quarter 1998. Jasonway
                  Partners, Ltd. constructed a medical complex which was
                  completed in the fourth quarter 1998 and Oncology operates its
                  second facility in a significant portion of this medical
                  complex. WBDC sold its interest in Jasonway Partners, Ltd. on
                  December 31, 1998 (see Note 2C). The second radiation therapy
                  practice ceased operations in second quarter 2000.


                                      11-28


<PAGE>   38


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 6.           EQUITY IN AFFILIATES (CONTINUED)

                  Audited financial information of the affiliates which are
                  accounted for by the equity method (See Note 2) is summarized
                  below:

<TABLE>
<CAPTION>
                                                                                        (in 000's)
                                                                          ---------------------------------------
                                                                               1999          1998         1997
                                                                               ----          ----         ----
<S>                                                                       <C>           <C>          <C>
                    COMBINED BALANCE SHEETS
                    Current assets                                        $       2,365 $      2,299 $     2,153
                    Property, plant and equipment, net of accumulated
                      depreciation                                                6,637       10,483       9,568
                    Other non-current assets                                        264          705         722
                                                                          ------------- ------------ -----------
                         Total assets                                     $       9,266 $     13,487 $    12,443
                                                                          ============= ============ ===========

                    Liabilities                                           $       7,317 $     12,416      10,213
                    Equity                                                        1,948        1,071       2,230
                                                                         -------------- ------------ -----------
                         Total liabilities and equity                     $       9,266 $     13,487 $    12,443
                                                                          ============= ============ ===========

                    COMBINED STATEMENTS OF OPERATIONS
                    Service revenues                                      $       7,625 $      7,204 $     5,667
                    Operating income (loss)                                     (1,221)        (649)         580
                    Cumulative effect of accounting change (Note 18)              (427)        -            -
                    Extraordinary gain from forgiveness of debt (Note 6)          1,745        -            -
                    Net income (loss)                                             (546)      (1,150)         208
</TABLE>

                  A limited liability company in which the Company had a 50%
                  membership interest with assets of $875,000, liabilities of
                  $840,000 and equity of $35,000 is unaudited as of December 31,
                  1997. The limited liability company had acquired land for
                  which a medical facility was under construction at December
                  31, 1998; therefore, it had no operations. The Company sold
                  its interest in this LCC on December 31, 1998 (see Note 2C).

                  As a result of the limited liability companies and limited
                  partnership being taxed as partnerships for Federal income tax
                  purposes and the C corporation's net losses, with a valuation
                  allowance for the total deferred tax assets, there is no
                  provision for income taxes.

                  Consolidated retained earnings of WBDC represented by
                  undistributed earnings of these equity affiliates total
                  $2,008,000 and $1,896,000 at December 31, 1999 and 1998,
                  respectively. Consolidated retained earnings is greater than
                  total equity of the affiliates due to income allocations
                  prescribed by the LLC member and partnership agreements. As
                  defined in these agreements, WBDC is reinstated for its share
                  of allocated equity prior to the other parties receiving any
                  distributions. Management has reviewed its investments and
                  advances for impairment at December 31, 1999.


                                      II-29


<PAGE>   39


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 6.           EQUITY IN AFFILIATES (CONTINUED)

                  At December 31, 1999 and 1998, the Company has investments and
                  related advances, net in these equity method affiliates of
                  approximately $3,294,000 and $4,664,000, respectively. During
                  1999, 1998 and 1997, the Company has made investments and
                  advances, net approximating $1,305,000, $1,661,000 and
                  $1,893,000, respectively. Advances have been made in excess of
                  amounts required by partnership and other agreements. Total
                  equity in these affiliates at December 31, 1999 and 1998
                  approximated $1,948,000 and $1,071,000, respectively.

                  In fourth quarter 1999, the Company forgave advances to
                  Oncology approximating $1,745,000. The expense in the
                  Consolidated Statements of Operations is included in
                  non-recurring costs (see Note 17). The Company's percentage of
                  the debt forgiveness based on ownership percentage of 22.5%
                  totals $392,556 ($337,088 net of minority interest) which has
                  been classified as an extraordinary gain in the Consolidated
                  Statement of Operation. The extraordinary item is not tax
                  effected due to the valuation allowance on deferred tax assets
                  for the year ended December 31, 1999; therefore, the income
                  tax effect after the valuation allowance would be zero.
                  Management utilized SFAS No. 114, "Accounting by Creditors for
                  Impairment of a Loan" which provides that once impairment has
                  been determined, future cash flows should be present valued
                  using the loan's effective interest rate. The advances do not
                  have a stated interest rate. The Company borrowed funds in the
                  form of bonds to fund the expansion into radiation therapy
                  with interest rates ranging from 5% to 7%. Management has
                  discounted estimated future cash flow with an interest rate of
                  8%. Management has estimated future cash flows assuming a
                  "turn-key" sale or lease of its radiation oncology facility.
                  The difference between the outstanding advances to Oncology
                  and the present valued future cash flows approximated
                  $1,745,000. At December 31, 1999, the net investment,
                  including advances, in Oncology approximates $490,000. While
                  the estimate is based upon management's estimate of cash
                  flows, there are no firm commitments by third parties at this
                  time. The amounts the Company will ultimately realize could
                  differ materially in the near term from the amounts assumed in
                  estimated future cash flows. As noted above, the debt
                  forgiveness based on ownership interest for the extraordinary
                  gain approximated $337,000, net of minority interest, for a
                  net expense of approximately $1,408,000 to the "Consolidated
                  Statement of Operations".

                  Management has determined that this transaction is debt
                  forgiveness instead of a capital contribution since original
                  capital contributions were in proportion to each stockholders'
                  ownership percentage; the Company or any other of the
                  stockholders were not required to put in additional capital;
                  and the Company utilized funds from bonds that were to fund
                  expansion into radiation therapy and other disciplines.

                  Management has determined the growth and focus of the Company
                  should be in diagnostic imaging, and nuclear medicine. In this
                  regard, the Company's expansion has included entities that
                  involve other investors; however, the Company has retained
                  operational control of the businesses. During 1998, the
                  Company, through these entities, has aggressively added new
                  locations, an addition to an existing facility and the
                  addition of new technology. The most prominent addition is a
                  new facility that opened in November 1998 containing radiation
                  therapy, nuclear medicine and diagnostic imaging, including
                  the first and only P.E.T. scanning device (for oncology and
                  cardiac applications) in Central Ohio. The radiation therapy
                  practice in the new facility ceased operations in June 2000.


                                      II-30

<PAGE>   40

         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 6.           EQUITY IN AFFILIATES (CONTINUED)

                  The Company has significant advances to these entities in
                  excess of its proportionate share of equity in the affiliates
                  and in the total equity of the affiliates. Management believes
                  that projected operating results in the diagnostic facilities
                  and estimated cash flows from net rents as discussed above for
                  the oncology facility will ensure the collectibility of the
                  advances, as adjusted.

                  See Note 11E for management fee income received from these
                  affiliates.

                  See Note 12B for related debt guarantees.

NOTE 7.           LONG-TERM OBLIGATIONS

                  At December 31, 1999 and 1998, long-term obligations are as
                  follows:

<TABLE>
<CAPTION>
                                                                                1999                    1998
                                                                                ----                    ----
<S>                                                                            <C>                  <C>

                  5.5% subordinated convertible bond,
                  interest only payable in quarterly
                  installments, principal due December, 2001                 $ 1,000,000            $  1,000,000

                  5.0% bonds, denominated in Swiss francs, interest only
                  payable in quarterly installments, principal due February,
                  2002, collateralized by right to obtain lien on
                  accounts receivable, inventory and equipment                 3,416,934               3,416,934

                  7.0% bonds, denominated in Swiss francs, interest only
                  payable in quarterly installments, principal due December,
                  2003, collateralized by right to obtain lien on
                  mortgaged land and real estate in New Jersey                 1,075,380                 806,300

                  Fixed rate mortgages utilizing interest rate swaps, with
                  bank - interest at 7.6%, payable in monthly installments
                  including interest through March, 2020 collateralized by
                  land, real estate and rent assignments                       2,513,968                 -

                  Variable rate mortgage - interest at 11.5% and 10.75% at
                  December 31, 1999 and 1998, respectively, payable in monthly
                  installments including interest through April, 2001, with
                  any remaining balance due May 1, 2001,
                  collateralized by land and real estate                       1,325,410               1,433,516

                  9% to 13% notes payable in monthly
                  installments including interest, through
                  February, 2006, collateralized by equipment                  5,673,869               4,845,262
</TABLE>


                                      II-31


<PAGE>   41


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 7.             LONG-TERM OBLIGATIONS (CONTINUED)

<TABLE>
<CAPTION>
                                                                                  1999                    1998
                                                                                  ----                    ----

<S>                                                                             <C>                     <C>
                    7.75% note with bank due December, 1999                        100,000               -

                    8% note with bank due on demand,
                    collateralized by accounts receivable and
                    equipment                                                      100,000               -
                                                                             -------------            ------------
                                                                                15,205,561              11,502,012
                    Less: current installments                                   5,881,325                 487,535
                                                                             -------------            ------------
                    Long-term portion                                        $   9,324,236            $ 11,014,477
                                                                             =============            ============
</TABLE>


                  Subsequent to year-end, the Company was notified by two of its
                  equipment leasing finance companies that the equipment loans
                  were in default; therefore, the outstanding balance for these
                  equipment finance companies at December 31, 1999 of $5,137,680
                  is classified as current in the "Consolidated Balance Sheets".

                  FIXED RATE MORTGAGES WITH BANK
                  ------------------------------

                  Debt covenants for the bank mortgages required the Company to
                  maintain certain financial ratios, restrictions on unfunded
                  capital expenditures and dividend restrictions. The Company
                  was in violation of the financial ratios at December 31, 1999.
                  A waiver was not received from the bank.

                  Related to the bank mortgages, the Company utilized interest
                  rate swaps to obtain a fixed rate of 7.6%. The interest rate
                  swap agreements were terminated in January, 2000 for a gain of
                  approximately $66,000.

                  Effective August 20, 2000, the bank modified the payment terms
                  on the mortgages provide for principal payments of $10,630
                  plus accrued interest at prime plus .5%. Prime was 8.5% at
                  December 31, 1999. The outstanding balance at December 31,
                  1999 has been classified between current and long-term debt in
                  accordance with the modified agreement.

                  VARIABLE RATE MORTGAGE
                  ----------------------

                  In March 2000, the mortgagor provided for interest only
                  through June 1, 2000 which period may be extended through
                  September 1, 2000. As the Company complied with all of the
                  provisions of the modification agreement through June 1, 2000,
                  the interest only period was extended through September 1,
                  2000. Management is currently requesting a further extension
                  of the interest-only period through March, 2001 along with a
                  two year extension of the term (until April 2003). Although
                  not yet finalized, the mortgagor has approved a tenant that,
                  if finalized, would occupy approximately 40% of the building.

                  5.5% SUBORDINATED CONVERTIBLE BOND AND 5% BONDS
                  -----------------------------------------------

                  Beginning February 2, 1997 through December 30, 2001 and March
                  26, 1997 through February 15, 2000, the 5.5% subordinated
                  convertible bond and 5% bonds may be converted in units of not
                  less than $100,000 into fully paid shares of the Company's
                  common stock at a conversion ratio of $2.00 of principle for
                  one share of common stock for the beneficial ownership of a
                  non United States person, pursuant to Regulation S of the
                  Securities Act of 1933.


                                      II-32


<PAGE>   42


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 7.           LONG-TERM OBLIGATIONS (CONTINUED)

                  7% BONDS
                  --------

                  Through December 7, 2003, these bonds may be converted into
                  fully paid shares of the Company's common stock at a
                  conversion rate of 3.7037 Swiss Francs of principle for one
                  share of common stock. Total outstanding principle at December
                  31, 1999 totals 1.5 million Swiss Francs.

                  OTHER
                  -----

                  Aggregate future principal maturities of long-term debt and
                  capital lease obligations are as follows: 2000 - $5,881,324,
                  2001 - $2,293,229, 2002 - $3,507,694, 2003 - $1,092,335, and
                  thereafter - $1,695.

                  All land and real estate is collateralized by the mortgages
                  payable.

                  The Company incurred interest expense in the amount of
                  $1,080,379, $609,945, and $1,063,017 in 1999, 1998 and 1997,
                  respectively, of which approximately $14,000, $13,000 and
                  $619,000 has been allocated to discontinued operations.

                  COMMITMENTS
                  -----------

                  See Commitments and Contingencies Note 12B for debt guarantees
                  made by the Company for entities which the Company has equity
                  ownership interests.

NOTE 8.           LEASE COMMITMENTS

                  The Company leases all of the locations (excluding the
                  Wendt-Bristol Diagnostics Company Women's Health Center) used
                  in its businesses under leases expiring on dates ranging
                  through July 2015.

                  As of December 31, 1999, minimum annual rental commitments
                  under noncancelable leases amount to:

                                OPERATING LEASES

                               2000            $            695,696
                               2001                         688,484
                               2002                         662,742
                               2003                         656,195
                               2004                         521,821
                            Thereafter                    4,282,990
                                                       ------------
                                               $          7,507,928
                                                       ============

                  In addition, the Company remains contingently liable for
                  certain leases on locations that have been sold. These
                  contingent leases include payments aggregating $26,000 over
                  the next year.

                  Rental expense included in the Consolidated Statements of
                  Operations for the years ended December 31, 1999, 1998 and
                  1997, was approximately $716,000, $620,000 and $543,000,
                  respectively, of which approximately $263,000, $303,000 and
                  $214,000 has been allocated to discontinued operations.

                                      II-33


<PAGE>   43


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 9.           INCOME TAXES

                  The Company has recognized a deferred tax liability, a
                  deferred tax asset and a valuation allowance against the
                  deferred tax assets. The components of these consolidated
                  deferred tax items at December 31, 1999 and 1998 are as
                  follows:

<TABLE>
<CAPTION>
                                                                           1999                    1998
                                                                           ----                    ----
<S>                                                              <C>                  <C>
                    Assets:
                      Net operating loss carryforwards                    $ 2,801,700              $  944,900
                      Investment tax credit carryforwards                       9,500                  15,600
                      Alternative minimum tax credits                          64,600                  64,600
                      Bad debt allowance                                      216,700                  98,100
                      Costs capitalized in connection with
                       acquisitions net of impairment                          17,800                -
                       adjustments
                      Related party reserves                                  142,300                -
                      Other                                                  -                         46,400
                                                                          -----------              ----------

                                                                            3,252,600               1,169,600
                      Less:  valuation allowance                            2,345,100               -
                                                                          -----------              ----------
                                                                              907,500               1,169,600
                                                                          -----------              ----------
                    Liabilities:
                      Depreciation and amortization                           145,300                 251,200
                      Costs capitalized in connection
                       with acquisitions                                     -                        591,200
                      Income and expense recognition                          762,200                 455,000
                      Other                                                  -                          4,500
                                                                          -----------              ----------
                                                                              907,500               1,301,900
                                                                          -----------              ----------
                    Net deferred tax liability                            $   -                    $  132,300
                                                                          ===========              ==========
</TABLE>

                  At December 31, 1998 deferred tax assets and liabilities have
                  been offset for balance sheet presentation except for the "net
                  deferred tax liability". Management has recognized a deferred
                  tax benefit of $87,200 which results from an increase in
                  deferred tax assets of $430,000 ($368,000 increase in net
                  operating loss carryforwards) and an offsetting increase of
                  $300,000 ($130,000 increase in excess tax depreciation and
                  $200,000 increase in income and expense recognition).
                  Management has utilized approximately $2.3 million of net
                  operating loss carryforwards through the sale of two nursing
                  home assets in 1997. Additionally, the valuation allowance was
                  reduced by $200,000 in 1997. These two factors combined to
                  result in a deferred tax expense of $516,300 in 1997. For the
                  year ended December 31, 1998 and 1997, management considered
                  the provisions of SFAS No. 109 that allows for utilization of
                  tax planning strategies associated with real estate. These
                  strategies, if necessary, could consider a possible sale
                  and/or sale/leaseback of such real estate to preclude the
                  expiration of net operating losses without realization of a
                  tax benefit. Realization of the deferred tax asset is
                  dependent on generating sufficient taxable income including
                  use of management's tax planning strategies prior to the
                  expiration of the loss carryforwards. Although realization is
                  not assured, management believes it is more likely than not
                  that a significant amount of the deferred tax asset will be
                  realized. The amount of the deferred tax asset considered
                  realizable, however, could be reduced in the near term if
                  either the current estimates of future taxable income are
                  reduced or management would be unable to effect an expected
                  sale and/or sale/leaseback of real estate. Both of these
                  conditions are currently necessary for consideration in the
                  evaluation of the realizability of the deferred tax assets and
                  estimated valuation allowance.


                                      II-34


<PAGE>   44


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 9.           INCOME TAXES (CONTINUED)

                  For the year ended December 31, 1999, the Company has incurred
                  significant losses including an impairment adjustment for the
                  real estate (see Note 12A) that was utilized as part of the
                  tax planning strategies in prior years for a sale/leaseback
                  transaction which was estimated to generate a significant
                  gain. Due to circumstances as discussed in Note 12A, this tax
                  planning strategy is no longer available. As a significant
                  portion of the deferred tax asset at December 31, 1999 relates
                  to net operating loss carryforwards of which approximately
                  $5.5 million was generated in the current year, a valuation
                  allowance has been recorded to reduce deferred tax assets net
                  of deferred tax liabilities to zero. Management believes that
                  all deferred tax liabilities will be recognized and offset by
                  the existing deferred tax assets prior to the expiration of
                  the net operating loss carryforwards in 2014.

                  Consolidated net operating losses available for tax purposes
                  at December 31, 1999 are approximately $8,240,000, expiring
                  $967,000 in 2006, $335,000 in 2008 and $383,000 in 2009,
                  $1,036,000 in 2013 and $5,517,000 in 2014. Investment tax
                  credits available for tax purposes at December 31, 1999 are
                  approximately $9,500 expiring in 2000. In 1997 as a result of
                  consolidated taxable income the Company was able to utilize
                  net operating losses of $4,077,000, of which $730,000 was
                  pre-operating losses of an acquired subsidiary which was only
                  to be used to offset taxable income by that subsidiary.

                  For the years ended December 31, 1999, 1998 and 1997 a
                  reconciliation of the statutory rate and effective rate for
                  the provision for income taxes consists of the following based
                  on amounts that do not include minority interests:

<TABLE>
<CAPTION>
                                                                                    PERCENTAGE
                                                                              ---------------------------
                                                                                1999       1998     1997
                                                                                ----       ----     ----

<S>                                                                           <C>        <C>         <C>
                    Federal statutory rate                                    (34.0)     (34.0)      34.0
                    Minority interests                                         (0.9)        8.1       2.5
                    Equity in unconsolidated affiliates                        (2.1)        2.4       6.7
                    State and local income taxes, net of federal
                     tax benefit                                              -           (7.5)       1.6
                    Alternative minimum tax                                   -          -            2.3
                    Tax effect of permanent differences                          4.0      (1.8)     (4.2)
                    Valuation allowance                                         35.7      -         (9.1)
                    Other                                                      (5.2)      (3.1)       0.1
                                                                              -------  -------    -------
                    Effective rate                                             (2.5)     (35.9)      33.9
                                                                              =======  =======    =======
</TABLE>

                  The expense (benefit) for income taxes consists of the
following:

<TABLE>
<CAPTION>
                                                           1999                 1998                 1997
                                                           ----                 ----                 ----
<S>                                                        <C>                   <C>                 <C>
                    Continuing Operations
                    ---------------------

                      Federal:
                        Current expense               $     -             $       -             $     -
                        Deferred expense (benefit )        (175,400)             (87,200)            (337,700)

                      State and local:
                        Current expense (benefit)           -                     12,291                4,200
                                                           --------             --------             --------
                                                           (175,400)             (74,909)            (333,500)
                                                           --------             --------             --------
</TABLE>


                                      II-35

<PAGE>   45


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 9.          INCOME TAXES (CONTINUED)

<TABLE>
<CAPTION>
                                                               1999                 1998                 1997
                                                               ----                 ----                 ----
<S>                                                            <C>               <C>                    <C>
                    Discontinued Operations
                    -----------------------

                      Federal:
                        Current expense                     -                    -                      40,000
                        Deferred expense (benefit )         -                    -                     854,000

                      State and local:
                        Current expense (benefit)             5,000             (29,071)                36,800
                                                          ---------            --------              ---------
                                                              5,000             (29,071)               930,800
                                                          ---------            --------              ---------

                    Total
                    -----

                      Federal:
                        Current expense                     -                    -                      40,000
                        Deferred expense                    -                    (87,200)              516,300
                        (benefit)

                      State and local:
                        Current expense (benefit)           -                    (16,780)               41,000
                                                          ---------           ----------             ---------

                    Total tax expense (benefit)           $(170,400)          $ (103,980)            $ 597,300
                                                          =========           ==========             =========
</TABLE>

                  The principal differences between the income or loss reported
                  for financial reporting purposes and the income or loss
                  reported for federal income tax purposes results from (i)
                  accelerated depreciation methods being utilized for tax
                  purposes, (ii) inventory capitalization methods required for
                  tax purposes, (iii) reserving for doubtful accounts
                  receivable, asset impairments and certain other reserves, (iv)
                  costs capitalized in connection with certain acquisitions for
                  financial reporting purposes and not for tax purposes, and (v)
                  income and expense recognition difference between financial
                  reporting and tax for equity affiliates.

NOTE 10.          STOCKHOLDERS' EQUITY

                  COMMON STOCK
                  ------------

                  In July 1998, the Company sold at $1.32 per share 200,000
                  shares of common stock held in treasury, pursuant to
                  Regulation S of the Securities Act of 1933. The cost of such
                  shares sold totaled $265,000.

                  In October 1996, the Company sold at $1.00 per share 500,000
                  shares of common stock held in treasury, pursuant to
                  Regulation S of the Securities Act of 1933. The total cost of
                  such shares sold totaled $463,000.



                                      II-36


<PAGE>   46


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 10.          STOCKHOLDERS' EQUITY (CONTINUED)

                  WARRANTS
                  --------


                  A.       At December 31, 1998, there were 414,538 warrants
                           outstanding. Each warrant, as a result of a November
                           1990 amendment, is exercisable for two and three
                           quarters (2-3/4) shares of The Wendt-Bristol Health
                           Services Corporation common stock. The Company has
                           reserved 1,139,980 shares for such issue. The
                           exercise price of $3.75 per warrant is the
                           equivalent of $1.36 per share. Other terms of the
                           warrants remain the same as when originally issued
                           in 1986, including the anti-dilution provisions,
                           except that the expiration date has been extended to
                           May 1, 1999, and the redemption feature has been
                           removed.

                           Also, as a result of the November 1990 amendment,
                           upon exercise of existing warrants, in addition to
                           the common shares to be received upon such exercise,
                           each warrant holder will receive, upon registration
                           under the Securities Act of 1933, a newly-created
                           Series II warrant which has been extended to May
                           2000, which enables the warrant holder upon exercise
                           of the Series II warrant to purchase 2 shares of
                           common stock at $3.00 per share.

                           The Board of Directors elected to allow the warrants
                           to expire on May 1, 1999 and the Series II warrants
                           to expire on May 1, 2000.

                  B.       In conjunction with the issuance, pursuant to
                           Regulation S of the Securities Act of 1933, of
                           Series No. 1 bonds issued on February 14, 1997, the
                           Company issued thirty-three (33) Series No. 1
                           warrants exercisable into a total of 300,000 shares
                           of the common stock of the Company for $2.00 per
                           share for the beneficial ownership of non U.S.
                           persons.

                  STOCK OPTIONS
                  -------------

                  The Company has previously adopted a qualified employee
                  incentive stock option plan (the "Plan"). The Plan provides
                  for 500,000 common shares to be made available for options
                  granted to eligible officers, directors and employees. The
                  options may be granted for a term not to exceed ten years
                  (five years with respect to a 10% shareholder) and are not
                  transferable or assignable. The exercise price of all options
                  must be at least equal to the fair market value of the common
                  stock at the date of grant, or 110% of such fair market value
                  with respect to any optionee who is a 10% shareholder of the
                  Company.

                  The Non-Employee Directors were granted options for 10,000
                  shares upon the first anniversary of their election. All such
                  options have expired except for one block of options to
                  purchase 10,000 shares at a price of $.375 with an expiration
                  date of February 1, 2000. Beginning in 1992, 1,000 options
                  were granted annually to each Non-Employee Director upon his
                  anniversary month as a Non-Employee Director. As of December
                  31, 1999, 26,000 options were outstanding to Non-Employee
                  directors. The annual expense for these Non-Employee directors
                  using the fair value based method (SFAS No. 123) was
                  insignificant.

                  In June, 1993 the Board of Directors granted 80,000 options to
                  purchase shares at a price of $1.25 to certain officers and
                  key employees. These options expired on June 3, 1998 and none
                  were exercised.


                                      II-37


<PAGE>   47


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 10.          STOCKHOLDERS' EQUITY (CONTINUED)

                  STOCK OPTIONS (CONTINUED)
                  -------------------------

                  In May, 1996 the Board granted options totaling 130,000 shares
                  to certain officers and key employees of which 36,000 are
                  outstanding at December 31, 1999. Such options are exercisable
                  at a price of $.875 per share and expire on May 23, 2001.

                  In October 1998, the Board granted options totaling 305,000 to
                  certain officers and key employees of which 260,000 are
                  outstanding at December 31, 1999. Such options are exercisable
                  at a price of $1.3125 per share and expire on October 16,
                  2003.

                  In 1997, 5,000 options were exercised at $.875 per share for
                  total proceeds of $4,375. Additionally, 30,000 options with
                  exercise prices of $.875 to $1.25 were terminated as the
                  employees are no longer employed by the Company.

                  No options were exercised in 1998. There were 452,000 stock
                  options outstanding at December 31, 1998 at prices ranging
                  from $.375 to $1.4375 per share.

                  In 1999, 62,000 options were exercised at prices ranging from
                  $.375 to $.875 per share for total cash proceeds of $687;
                  61,000 options were exercised in exchange for 29,673 shares
                  held by the employees/directors as provided for in the Plan.
                  Additionally, 110,000 options were terminated as the employees
                  are no longer employed by the Company.

                  At December 31, 1999 and 1998, options available for grant
                  were 219,000 and 43,000, respectively.

                  The Company utilizes the intrinsic value method under APB No.
                  25 to account for employee stock options. The Company has
                  utilized the Black Scholes option pricing model for proforma
                  footnote purposes with the following assumptions used for
                  grants in all years. Dividend yield of 0%, risk-free interest
                  rate of 6%, and expected option life of 5 years. Expected
                  volatility was 70% If the Company had utilized the fair value
                  based method under FASB No. 123, the impact would not be
                  significant to the financial statements.


                                      II-38

<PAGE>   48

         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 10.          STOCKHOLDERS' EQUITY (CONTINUED)

                  EARNINGS PER SHARE
                  ------------------

                  The following is a reconciliation of the basic and diluted EPS
                  for December 31, 1997. As noted below, basic and diluted EPS
                  are the same for the years ended December 31, 1999 and 1998:

<TABLE>
<CAPTION>
                                                           INCOME                 SHARES              PER SHARE
                                                        (NUMERATOR)           (DENOMINATOR)            AMOUNT
                                                        -----------           -------------            ------
<S>                                                    <C>                      <C>                <C>
                    BASIC EPS
                      Income available to
                       common stockholders             $   1,381,613            6,224,241          $        .22
                                                                                                   ============
                      Effect of dilutive
                       securities (net of tax)
                        5.5% convertible bond                 35,200              500,000
                        Options                               15,017              192,000
                                                       -------------            ---------
                    DILUTED EPS
                      Income available to
                       common stockholders and
                       assumed conversions             $   1,431,830            6,916,241          $       .21
                                                       =============           ==========          ===========
</TABLE>

                  At December 31, 1997, 1,440,980 stock options and warrants not
                  associated with convertible debt were excluded from the
                  computation of diluted EPS because the exercise price was
                  greater than the average market price of the common shares. At
                  December 31, 1999 and 1998, all potential common stock would
                  be anti-dilutive due to the net loss.

NOTE 11.          RELATED PARTY TRANSACTIONS

        A.        PARTNERSHIP OWNERSHIP
                  ---------------------

                  Certain officers and directors own, in the aggregate, less
                  than 6% of the outstanding limited partnership interests of a
                  limited partnership of which a subsidiary of the Company is
                  the managing general partner.


                                      II-39


<PAGE>   49


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 11.          RELATED PARTY TRANSACTIONS (CONTINUED)

        B.        SALE OF ASSETS TO A RELATED PARTY

                  Effective January 1, 1995, the Company sold the operating
                  assets of a subsidiary's retail liquor store and two lounges
                  in Florida to MHK Corp., a company owned by certain of the
                  Company's officers and directors. The purchase price was
                  equivalent to the net book value of the net assets, with no
                  gain or loss recognized, totaling $574,949, as adjusted for
                  certain 1995 transactions.

                  The purchase price is evidenced by a promissory note bearing
                  interest at 9%. The note accrued interest from the effective
                  date of the sale through June 30, 1996 at which time the total
                  accrued interest of $77,618 was added to the original sale
                  price for a total amended principal sum of $652,567. The note
                  is payable in monthly installments of $8,266 including
                  interest, from July 1, 1996 through June 1, 2006 with the
                  balance fully amortized.

                  At April 15, 1996, the Company combined all advances to MHK
                  Corp. into a promissory note totaling $156,868 bearing
                  interest at 9% which accrues from July 1, 1996 until paid. The
                  note is payable in monthly installments, including interest,
                  of $1,987 from July 1, 1996 through June 1, 2006 with the
                  balance fully amortized.

                  The Company revised all obligations due from MHK into a single
                  promissory note ($790,600 at December 31, 1998) providing for
                  monthly payments commencing in 1999 of $9,180, including
                  interest at 7% per annum. As a result of this modification,
                  the Company has received additional collateral and a
                  commitment from one of the principals, a Company officer and
                  director, to provide personal payments of $3,000 per month
                  toward the MHK obligation.

                  During 1999, MHK Corp. made cash payments on the note
                  receivable of $40,000 and applied $11,589 of interest expense
                  payable to one of the owners of MHK Corp. toward the note
                  receivable. Additionally, MHK Corp. retained cash payments on
                  various notes receivable due to the Company during 1998, 1999
                  and 2000 which approximated $180,000. At December 31, 1999,
                  the total outstanding balance for the note receivable, accrued
                  interest receivable and advances totals $943,563.

                  The Company has received collateral interests in certain
                  assets including assets of a lounge and retail liquor store;
                  security interest on real estate in Ohio, leases and rents
                  associated to that property; leasehold interest in a Florida
                  property leased by MHK Corp. and subleased to a third party;
                  and a potential gain on the sale/leaseback of real estate
                  associated with the lounge and liquor store; and reduction of
                  amounts owed to one of the owners of MHK Corp. and related
                  parties.

                  Management has evaluated future cash flows and /or use of
                  collateral to support the outstanding balances for the note
                  receivable, accrued interest receivable and advances. At
                  December 31, 1998 and 1997, management determined a reserve on
                  the note receivable and advances were not necessary. During
                  1999, due to changes in certain values of the collateral, the
                  note not being amortized in accordance with the revised note
                  schedule, and continued advances in 1999 and 2000, a reserve
                  of approximately $419,000 has been recorded in the
                  "Consolidated Statements of Operations" as non-recurring items
                  which represents the difference between the outstanding
                  balance at December 31, 1999 and the estimated fair market
                  value of the underlying collateral. The outstanding balance,
                  as reserved, at December 31, 1999 totals $525,000.


                                      II-40


<PAGE>   50


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 11.          RELATED PARTY TRANSACTIONS (CONTINUED)

        B.        SALE OF ASSETS TO A RELATED PARTY
                  ---------------------------------

                  During 1999 and 1998, MHK paid $26,000 and $20,000,
                  respectively, of the total interest due on the notes. As a
                  result, the Company has not recorded income attributable to
                  the balance of 1999 and 1998 interest ($27,300 and $43,200,
                  respectively).

        C.        NOTES RECEIVABLE FROM OFFICERS AND RELATED PARTIES
                  --------------------------------------------------

                  Interest income totaling $26,000, $20,000 and $68,328 for the
                  year ended December 31, 1999, 1998 and 1997, respectively, is
                  included in "interest expense, net". Interest income
                  receivable totaled $-0- and $1,056 at December 31, 1999 and
                  1998, respectively, and is included in "miscellaneous
                  receivables".

                  At December 31, 1999 and 1998, the President and CFO of the
                  Company had outstanding advances totaling approximately
                  $183,000 and $198,000, respectively. The President/CFO has
                  granted a security interest in certain collateral to enhance
                  the realization of the indebtedness, which is evidenced by a
                  non-interest bearing promissory note, which provides for
                  annual payments of $15,000 in 1998 and subsequent years.
                  Subsequent to year-end, no payments have been made.

        D.        LIFE INSURANCE PREMIUMS RECEIVABLE
                  ----------------------------------

                  The balance sheet includes $396,337, (net of a reserve of
                  $321,500), and $1,095,135 at December 31, 1999 and 1998
                  respectively, for policies with death benefits totaling
                  $2,750,000 under the caption "Life insurance premiums
                  receivable". The Company, pursuant to agreements, has
                  purchased life insurance on the lives of certain officers and
                  key employees on a "split-dollar" basis. The program is
                  designed so that payments the Company makes on behalf of each
                  officer are collateralized by assignments of the related life
                  insurance policies (i.e., the accumulated policy cash value,
                  the policy death benefit, or a combination thereof). The life
                  insurance premiums receivables are noninterest-bearing. The
                  insured parties own the policies and, with the consent of the
                  Company, are permitted to borrow from the cash surrender
                  values of the policies. Under the "split-dollar" agreements,
                  the Company advances the premium payments and upon the death
                  of the insured would receive the return of such advances from
                  the death benefits or from cash value (without termination of
                  the policy) at such other times (i.e. termination of
                  employment) prior to the death of the insured.

                  By Amendment No. 1 to the "split-dollar" agreement, the
                  applicable officers of the Company recognize the premiums
                  receivable not collateralized by the policy cash surrender
                  values of $656,000 at December 31, 1999, are their personal
                  responsibility if not collected through the respective
                  policies as long as the Company continues to maintain the
                  policies. The Company has represented its intention and
                  obligation to maintain the policies. The individuals have
                  agreed to provide additional collateral to the Company, by
                  pledging common shares they own in the Company to enhance the
                  realization of these receivables.

                  Annual premiums for these policies total $107,000, $138,000
                  and $107,000 for the years ended December 31, 1999, 1998 and
                  1997, respectively. Net cash surrender value on these policies
                  approximated $61,500 and $500,000 at December 31, 1999 and
                  1998, respectively. The reduction in cash surrender value
                  during 1999 represents loans against the policies totaling
                  $490,000 which were remitted to the Company by certain
                  officers as a reduction of the life insurance premiums
                  receivable. These funds were used for working capital.

                                      II-41


<PAGE>   51


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 11.          RELATED PARTY TRANSACTIONS (CONTINUED)

        D.        LIFE INSURANCE PREMIUMS RECEIVABLE (CONTINUED)
                  ----------------------------------------------

                  Subsequent to year-end, certain of the life insurance policies
                  were replaced with policies of similar nature without
                  increases to premiums. The net cash surrender values were
                  received by the Company.

                  Management has evaluated the underlying collateral of Company
                  common stock, in accordance with SFAS No. 114, using the
                  trading price of its common stock at each year-end activity
                  subsequent to year-end to reflect any changes in the stock
                  market. At December 31, 1998 and 1997, a reserve on the life
                  insurance premiums receivable was not deemed necessary. At
                  December 31, 1999, the underlying collateral of common stock,
                  using the trading price of $.625 per share, represented
                  collateral approximating $418,000 for a collateral deficiency
                  of approximately $238,000. On August 10, 2000, the Company was
                  delisted from the American Stock Exchange for non-filing of
                  Form 10K for the year ended December 31, 1999 with the
                  Securities and Exchange Commission. As the common stock
                  subsequent to year-end does not have an available market for
                  trading, management has determined that a 20% reduction in the
                  trading price is reasonable for purposes of valuing its common
                  stock as collateral. The Company's common stock was trading on
                  April 18, 2000 (the last day of trading) at $.625; therefore,
                  with a 20% reduction in value, the common stock is valued at
                  $.50 per share for purposes of valuing collateral. Based on
                  this revised valuation, a reserve of $321,500 has been
                  recorded in the "Consolidated Statements of Operations" as
                  non-recurring items for the year ended December 31, 1999 (see
                  Note 17). Life insurance premiums receivable, as adjusted for
                  impairment, total $396,337 at December 31, 1999. Estimated
                  future cash flows of the underlying collateral utilize
                  estimates of the Company's ability to engage a market maker
                  for its common stock and that this new market will approximate
                  previous prices per share utilizing a 20% discount. The
                  amounts the Company will ultimately realize could differ
                  materially in the near term from the amounts assumed in
                  estimated the underlying collateral.

        E.        MANAGEMENT FEES FROM AFFILIATES
                  -------------------------------

                  A subsidiary of the Company, WBDC, which owns equity interests
                  in a limited partnership, limited liability companies and a
                  corporation (See Note 6), is the management agent for three of
                  the companies. Management fees totaling $696,000, $697,000 and
                  $491,000 were included in the Consolidated Statements of
                  Operations as a reduction of selling, general and
                  administrative expenses for the year ended December 31, 1999,
                  1998 and 1997, respectively.

        F.        NOTES PAYABLE TO OFFICER
                  ------------------------

                  During 1999, an officer of the Company has advanced funds
                  totaling $446,000. The note is payable on demand and bears
                  interest at 8%. At December 31, 1999, the balance outstanding
                  is $225,000. These funds were used for working capital.
                  Subsequent to year-end, the officer reduced amounts owed by
                  $10,000 as a payment on the MHK receivable, and assumed
                  outstanding notes receivable in the approximate amount of
                  $160,000 (including an equity affiliate note) to further
                  reduce the note payable. As a result of the aforementioned
                  payments as well as additional borrowings by the Company, the
                  current outstanding balance due the officer is approximately
                  $150,000.

                  The notes payable are collateralized by 1,017,560 shares of
                  common stock of WBDC (85.871% of the outstanding shares).


                                      II-42


<PAGE>   52


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 11.          RELATED PARTY TRANSACTIONS (CONTINUED)

        G.        EMPLOYMENT AGREEMENTS
                  ---------------------

                  Subsequent to year-end, the Board of Directors authorized
                  five-year employment agreements for the Chairman of the Board,
                  President and Executive Vice President. Effective June 15,
                  2000, the five-year employment agreements provide for combined
                  annual salaries approximating $465,000 per year which
                  represents the current compensation levels for these
                  employees. The agreements provide that unless terminated for
                  cause, as defined in the agreement, these officers will be
                  paid in a lump sum the remaining portion of their five year
                  compensation package.

        H.        TRANSFER OF BUILDINGS/DEBT AND RENTAL INCOME
                  --------------------------------------------

                  In April 1999, WBDC obtained bank mortgage debt for two
                  properties for its equity affiliates totaling $2,550,000.
                  Outstanding debt on these mortgages at December 31, 1999
                  approximated $2,514,000. The land and buildings ($3,746,000)
                  net of related outstanding debt of the equity affiliates
                  ($2,990,000) approximated a reduction ($756,000) of
                  "Investments and related advances, net" on the Consolidated
                  Balance Sheet. No gain or loss was recognized in these
                  transactions as the assets were sold at net book value.

                  Included in property, plant and equipment at December 31, 1999
                  are land, buildings and improvements of $3,747,163 with
                  accumulated depreciation of $63,200. The Company has verbal
                  rental agreements with the equity affiliates.

                  Rental income approximated $219,000 for the year ended
                  December 31, 1999.

        I.        DEBT FORGIVENESS OF EQUITY AFFILIATE
                  ------------------------------------

                  During 1999, the Company forgave advances to a 22.5% owned
                  equity affiliate approximating $1,745,000 which is included in
                  the "Consolidated Statements of Operations" as non-recurring
                  items (see Note 17). Additionally, the Company's percentage of
                  the debt forgiveness based on ownership percentage
                  approximates $393,000 as an extraordinary gain.

NOTE 12.          COMMITMENTS AND CONTINGENCIES

        A.        REAL ESTATE RELATED TO PREVIOUSLY SOLD DIVISION
                  -----------------------------------------------

                  In October 1991, the Company sold substantially all of the
                  assets (other than real estate) of its manufacturing division
                  located in New Jersey.

                  As part of that transaction, the buyer entered into a lease on
                  the physical facilities. The buyer is responsible for taxes,
                  maintenance, and insurance costs. Rental income has been
                  recorded on a straight-line basis over the term of the lease.


                                      II-43
<PAGE>   53


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 12.          COMMITMENTS AND CONTINGENCIES (CONTINUED)

        A.        REAL ESTATE RELATED TO PREVIOUSLY SOLD DIVISION (CONTINUED)
                  -----------------------------------------------------------

                  During the first quarter of 1999, the Company learned that the
                  buyer/tenant had vacated the premises. The buyer/tenant
                  continued to maintain its responsibilities under the lease
                  including the payment of rent, maintenance of the property and
                  insurance coverage. At December 31, 1998, management believed
                  the buyer/tenant would continue to recognize its obligations
                  under the lease while the buyer/tenant attempted to
                  consolidate its operations subsequent to several significant
                  acquisitions. Its options included the possibility of securing
                  an acceptable sub-tenant or providing a buyer with an offer
                  acceptable to the Company.

                  The buyer /tenant continued to meet its obligations under the
                  lease through October 1999. The Company was notified in
                  December 1999 that the buyer/tenant had filed for bankruptcy.

                  Based on the change in circumstances by the tenant filing for
                  bankruptcy, the Company has re-evaluated the building and
                  related assets for impairment loss utilizing undiscounted net
                  cash flows. It is management's intent to find suitable
                  tenants, therefore, management is using cash flows from rental
                  income and sale of the building. Utilizing revised fair market
                  value estimates of the building and related assets by a third
                  party and other cash flows, an impairment adjustment
                  approximating $1,751,000 has been recorded in the
                  "Consolidated Statements of Operations" as a component of
                  non-recurring items for the year ended December 31, 1999.
                  Land, buildings and improvements, after the impairment
                  adjustment, approximates $1,435,000 at December 31, 1999.
                  Outstanding mortgage debt on the land, building and
                  improvements approximates $1,325,000 at December 31, 1999.
                  While the estimate of net cash flows is based on management's
                  estimate of cash flows, there are no firm commitments by third
                  parties at this time. The amount the Company will ultimately
                  realize could differ materially in the near term from the
                  amounts assumed in estimating future cash flows.

                  Additionally, goodwill impairment approximating $185,000 was
                  expensed as non-recurring items as the goodwill related to the
                  manufacturing division. At December 31, 1999, deferred charges
                  including a rent adjustment to properly recognize rental
                  income on the lease manufacturing facility approximating
                  $85,000 and arbitration costs with the buyer/tenant
                  approximating $59,000 were expensed as non-recurring items.

                  As a result of compliance with the State of New Jersey
                  environmental laws and in connection with the sale of the
                  division, the Company is in the process of a clean-up of
                  contamination caused by prior ownership whereby the property
                  had been contaminated by leaking underground storage tanks and
                  the discharge of certain industrial fluids into the sewage
                  system. The Company spent approximately $23,000, $18,000, and
                  $56,000 related to the clean-up during the years ended
                  December 31, 1999, 1998 and 1997, respectively. Costs
                  attributable to this project, incurred or accrued, have been
                  capitalized subject to the impairment adjustment at December
                  31, 1999. The Company's consulting engineers have completed a
                  study of the contamination and have submitted a clean-up plan
                  to the appropriate State of New Jersey department. The
                  remaining estimated costs to complete the plan are
                  approximately $125,000. Refer to Note 3 regarding restricted
                  cash set aside to satisfy the New Jersey Department of
                  Environmental Protection and Energy. The Company has been
                  advised that completion is expected by the end of 2000.


                                      II-44


<PAGE>   54


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 12.          COMMITMENTS AND CONTINGENCIES (CONTINUED)

        B.        DEBT GUARANTEES
                  ---------------

                  At December 31, 1999 and 1998, the Company or its subsidiaries
                  is contingently liable as a guarantor of long-term debt and
                  capital lease obligations totaling $6,650,000 and $6,822,000,
                  respectively for medical equipment that is currently in or
                  will be placed in service by entities that WBDC has ownership
                  interests varying from 22.5% to 50%.

                  These equity affiliates have been notified subsequent to
                  year-end by two of its equipment leasing financing companies
                  that the loans are in default. The Company or its subsidiaries
                  have guaranteed $3,036,000 of the long-term debt and capital
                  lease obligations.

        C.        TAXES, OTHER THAN FEDERAL INCOME TAXES
                  --------------------------------------

                  Primarily as a result of delays inherent in collection of
                  receivables related to newly-approved procedures associated to
                  the new facilities as well as costs of establishing the new
                  facilities, the Company or its subsidiaries has outstanding
                  Federal and state and local payroll tax liabilities
                  approximating $990,000 and $165,000, respectively on the
                  Consolidated Balance Sheets at December 31, 1999.
                  Approximately $155,000 and $33,000, respectively has been
                  recorded as management's estimates of penalties and interest.
                  Management believes an acceptable and reasonable payment
                  schedule will be achieved.

                  Subsequent to year end, the Company has incurred additional
                  federal, state and local payroll tax liabilities through June
                  30, 2000 approximating $408,000 and $150,000, respectively,
                  which remain unpaid.

                  On July 10, 2000, the Internal Revenue Service filed federal
                  tax liens on the Company and certain subsidiaries
                  approximating $1,327,000 of which $1,100,000 represents
                  amounts outstanding at December 31, 1999. The federal tax lien
                  attaches to all property the above mentioned companies
                  currently own and all property acquired in the future.

        D.        ACCRUED HEALTH INSURANCE CLAIMS
                  -------------------------------

                  The Company is self-funded for health insurance up to a
                  certain dollar amount per participant in its plan. At December
                  31, 1999, the Company owes the plan supervisor approximately
                  $201,000 for claim payments which is accrued in full and
                  included on the Consolidated Balance Sheets. The Department of
                  Labor ("DOL") reviewed certain items pertaining to compliance
                  with Employee Retirement Income Security Act (ERISA) in July
                  2000. Based on preliminary discussions with the DOL,
                  management believes an acceptable and reasonable payment
                  schedule will be achieved.

                  Subsequent to year end, the Company has incurred additional
                  health insurance liabilities through June 30, 2000
                  approximating $16,000 which remain unpaid.


                                      II-45


<PAGE>   55


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 12.          COMMITMENTS AND CONTINGENCIES (CONTINUED)

        E.        LATE CHARGES AND PENALTIES FOR DEBT AND ACCOUNTS PAYABLE
                  --------------------------------------------------------

                  Due to cash flow deficiencies, the Company has been assessed
                  late charges and penalties for long-term debt, taxes and trade
                  accounts payable. The Company has recorded approximately
                  $195,000 of these late charges. Additional late charges and
                  penalties assessed approximating $158,000 have not been
                  recorded at December 31, 1999. Subsequent to year-end, a
                  promissory note was signed incorporating $67,000 of late fees
                  associated with long-term debt. Management intends to
                  negotiate waivers of the fees and believes that the excess
                  charges will be waived upon payment.

        F.        LEGAL PROCEEDINGS
                  -----------------

                  Various legal proceedings pertaining to unpaid trade accounts
                  payable are pending against the Company. The Company has
                  accrued amounts that management believes are outstanding which
                  approximate $422,000. If the Company is unsuccessful in
                  defending its position in these matters and the plaintiff
                  prevails, additional amounts approximating $133,000 would need
                  to be accrued and paid.

NOTE 13.          INDUSTRY SEGMENT DATA

                  Industry segment data for years ended December 31, 1999, 1998
                  and 1997 included in Item 1 ("Industry Segments") of this
                  report is an integral part of these financial statements. The
                  nursing home segment was discontinued in December 1999;
                  therefore, the financial statements have been restated to
                  reflect the discontinued operations in the Consolidated
                  Statement of Operations.

NOTE 14.          RETIREMENT PLAN

                  The Company adopted, effective July 1, 1989, a retirement
                  plan, under Section 401(k) of the Internal Revenue Code,
                  covering substantially all employees with more than one year
                  of service. The plan provides for the Company and its
                  affiliates accounted for on the equity method to contribute,
                  on an annual basis, 10% of the employees' eligible deferred
                  compensation; such employer contribution is in the form of
                  Company common stock. The Company values the actual shares
                  transferred to the Plan from the treasury at the respective
                  December 31 market value. During 1999, 1998 and 1997, the
                  Company contributed 7,350, 9,453, and 6,306 shares, and
                  recorded an expense of $9,643, $11,816 and $9,458,
                  respectively.


                                      II-46


<PAGE>   56


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 15.         SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING
                 ACTIVITY

<TABLE>
<CAPTION>
                                                             1999            1998           1997
                                                             ----            ----           ----

                    SUPPLEMENTAL DISCLOSURES OF
                     NONCASH INVESTING AND
                      FINANCING ACTIVITY

<S>                                                      <C>          <C>           <C>
  A subsidiary purchased equipment which was financed by
  entering into an installment finance agreement:
    Increase in equipment cost, net                      $    713,522 $   4,471,090 $     147,921
    Increase in long-term obligations                        (713,522)   (4,471,090)     (147,921)

  Property, plant and equipment and related debt was
   transferred from equity affiliates:
    Increase in property, plant and
     equipment, net                                         3,746,163       302,963          --
    Increase in debt                                       (2,990,585)     (288,496)         --
    Decrease in investments and related
      advances, net                                          (755,578)      (14,467)         --

  Unrealized loss on securities available for sale:
    Increase (decrease) in securities held
     for sale                                                 126,809      (126,809)         --
    Decrease (increase) in deferred tax
     liability                                                (43,100)       43,100          --
    Decrease (increase) in net unrealized
     losses on securities available for                       (83,709)       83,709          --
     sale
</TABLE>


                                      II-47


<PAGE>   57


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



NOTE 15.         SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING
                 ACTIVITY (CONTINUED)

<TABLE>
<CAPTION>
                                                                        1999              1998             1997
                                                                   -    ----              ----             ----
<S>                                                             <C>              <C>               <C>
                      Two subsidiaries of the Company sold nursing
                      home assets. Additionally, HUD replacement
                      reserves are to be returned as part of the
                      sale.
                        Increase in notes receivable, current   $        -       $         -       $      2,923,794
                        Increase in miscellaneous receivables            -                 -                261,327
                        Decrease in restricted cash                      -                 -              (264,287)
                        Decrease in prepaid expenses                     -                 -               (11,535)
                        Decrease in property, plant and
                          equipment, net                                 -                 -            (7,064,636)
                        Decrease in excess of cost over assets
                          of businesses and subsidiaries                 -                 -              (189,096)
                          acquired
                        Decrease in deferred charges and other
                          assets                                         -                 -              (317,120)
                        Increase in accrued expenses                     -                 -              (394,367)
                        Decrease in debt                                 -                 -              6,083,927
                        Gain on sale of nursing home assets,
                         net of cash proceeds ($750,000)                 -                 -            (1,028,007)

                      Note receivable from officers and related
                      parties was reduced by assigning a non-
                      related party note receivable
                        Increase in notes receivable                     -                 -                105,000
                        Decrease in notes receivable from
                          officers and related parties                   -                 -               (46,826)
                        Decrease in accrued interest payable             -                 -               (58,174)
</TABLE>

NOTE 16.          FAIR VALUE OF FINANCIAL INSTRUMENTS

                  The fair value of a financial instrument represents the amount
                  at which the instrument could be exchanged in a current
                  transaction between willing parties, other than in a forced
                  sale or liquidation. Significant differences can arise between
                  the fair value and carrying amount of financial instruments
                  that are recognized at historical cost amounts.

                  The following methods and assumptions were used by the Company
                  in estimating fair value disclosures for financial
                  instruments:

                  -   Cash and cash equivalents, trade receivables, certain
                      other current assets, short-term borrowings and current
                      maturities of long-term debt: Amounts reported in the
                      Consolidated Balance Sheets approximate fair value due to
                      their short maturities.

                  -   Long-term notes receivable including related party and
                      life insurance premiums receivable: Amounts reported in
                      the Consolidated Balance Sheets approximate fair value
                      after reduction for reserves.


                                      II-48


<PAGE>   58


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



NOTE 16.          FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

                  -   Long-term debt: Amounts reported in the Consolidated
                      Balance Sheets approximates fair value. Interest rates on
                      the majority of the debt is fixed; however, debt financed
                      within the current year approximates interest rates
                      obtained in previous years due to the relative stability
                      of the prime rate.

                  -   Interest rate hedges: The fair value of interest rate
                      hedges reflects the estimated amounts that the Corporation
                      would receive or pay to terminate the contracts at the
                      reporting date.

                  -   Foreign currency contracts: The fair value of forward
                      exchange contracts and options is estimated using prices
                      established by financial institutions for comparable
                      instruments. Amounts reported in the Consolidated Balance
                      Sheets approximates fair value.

                  The following table sets forth the carrying amounts and fair
                  values of the Company's financial instruments, except for
                  those noted above for which carrying amounts approximate fair
                  values:

<TABLE>
<CAPTION>
                                                                                      In 000's
                                                                                      --------
                    Assets (Liabilities)                              December 31, 1999        December 31, 1998
                                                                      -----------------        -----------------

                                                                    Carrying       Fair       Carrying     Fair
                                                                     Amount       Value        Amount      Value
                                                                    --------      -----       --------     -----
<S>                                                                 <C>           <C>         <C>          <C>
                    Derivatives relating to:
                        Debt                                        $   -         $ 66        $  -         $  -
</TABLE>

NOTE 17.          NON-RECURRING ITEMS AND FOURTH QUARTER ADJUSTMENTS

                  The Consolidated Statements of Operations for the year ended
                  December 31, 1999 include non-recurring expenses in the
                  financial statements approximating $4,870,000, which were
                  recorded in the fourth quarter 1999. The following summarizes
                  the items expensed:

<TABLE>
<S>                                                                                            <C>
                    Asset impairment for building, goodwill and related assets (see Note 12A)  $     2,081,196
                    Registration statement costs (A)                                                   254,626
                    Life insurance premium receivable reserve (see Note 11D)                           321,500
                    Investment and related advances, net write-off (see Note 6)                      1,744,694
                    Notes receivable from officers and related parties reserve (see Note 11B)          418,563
                    Miscellaneous receivable - Medicare reserve (B)                                     49,000
                                                                                               ---------------
                                                                                               $     4,869,579
                                                                                               ===============
</TABLE>

                  (A) The Company had announced plans to acquire the minority
                  interest of WBDC and the limited partnership interests of
                  Diagnostics LP by filing Form S-4's with the Securities and
                  Exchange Commission. On June 26, 1999, the Company announced
                  that it was withdrawing the Registration Statements.


                                      II-49


<PAGE>   59


         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



NOTE 17.          NON-RECURRING ITEMS (CONTINUED)

                  (B) Certain costs were initially disallowed by Medicare for
                  years 1994 and 1995 relating to the home health care
                  operations. The Company was contesting these claims based on
                  advice from legal counsel. Court dates were scheduled for
                  2000. Management, with advice from legal counsel, has
                  reassessed the likelihood of collection for these disallowed
                  costs and has determined that a reserve of 50% was deemed
                  necessary.

NOTE 18.          ACCOUNTING CHANGE

                  Effective January 1, 1999, the Company changed its method of
                  accounting for start-up costs to be in compliance with
                  Statement of Position 98-5 "Reporting on the Costs of Start-Up
                  Activities". The change involved expensing these costs as
                  incurred, rather than capitalizing and subsequently amortizing
                  such costs. The change in accounting resulted in the write-off
                  of the Company's costs of $238,083. In addition, entities
                  accounted for by the equity method have deferred start-up on
                  their balance sheets approximating $428,000. The Company's
                  portion of these costs for their ownership percentage totals
                  $117,005. Total costs expensed in the Consolidated Statement
                  of Operations total $355,087 (gross). The impact to the
                  financial statements net of minority interests totals
                  $304,913. The change in accounting has not been tax effected
                  in the current year due to a valuation allowance for the
                  entire deferred tax asset resulting in a current tax effect of
                  zero.

                  The pro forma effect on prior years had the new method been
                  used in the past is as follows:

<TABLE>
<CAPTION>
                                                     1999                     1998                     1997
                                                     ----                     ----                     ----
                                                As          Pro         As          Pro          As          Pro
                                             Reported      Forma     Reported      Forma      Reported      Forma
                                             --------      -----     --------      -----      --------      -----
<S>                                       <C>          <C>         <C>         <C>         <C>          <C>
Income (loss) from continuing operations:
    Earnings (loss) per share - basic     $     (1.18) $    (1.18) $    (0.06) $    (0.11) $     (0.08) $    (0.11)
    Earnings (loss) per share - diluted         (1.18)      (1.18)      (0.06)      (0.11)       (0.09)      (0.09)

Net income (loss):
    Earnings (loss) per share - basic           (1.14)      (1.09)      (0.04)      (0.10)         0.22        0.19
    Earnings (loss) per share - diluted         (1.14)      (1.09)      (0.04)      (0.10)         0.21        0.18
</TABLE>



                                      II-50

<PAGE>   60
                                                        III

ITEM 10.          DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

                  The following table and the text following the table set forth
                  certain information with respect to the Directors and
                  Executive Officers (being all of the Directors of the Company,
                  except for Dr. Penn, Mr. Del Ponte and Mr. Levine) of the
                  Company. Each Director serves until the next Annual Meeting of
                  Stockholders of the Company and until his successor is elected
                  and qualified, unless such Director resigns or dies prior
                  thereto. Each Executive Officer except Marvin D. Kantor,
                  Sheldon A. Gold and Reed A. Martin serves at the pleasure of
                  the Board. Messrs. Marvin D. Kantor, Sheldon A. Gold and Reed
                  A. Martin have entered into 5 year terms (see Item 11).


<TABLE>
<CAPTION>
                                NAME             AGE                CURRENT POSITIONS WITH COMPANY
                                ----             ---                ------------------------------

<S>                                                 <C>
                    Marvin D. Kantor                71     Chairman of the Board, Chief Executive
                                                            Officer and Director

                    Sheldon A. Gold                 57     President, Treasurer, Chief Financial Officer,
                                                            Director, member of Audit Committee

                    Reed A. Martin                  46     Executive Vice President, Chief Operating
                                                            Officer and Director

                    Harold T. Kantor                66     Vice Chairman of the Board, Director

                    Paul H. Levine                  59     Director, member of Audit Committee

                    Gerald M. Penn                  63     Director, Vice President of Medical Affairs
                                                            (1998)

                    Clemente Del Ponte              48     Director (resigned June 16, 2000)

                    David E. Fernie                 52     Director, member of Audit Committee
</TABLE>

                  Marvin D. Kantor has been Chairman of the Board since May
                  1988; prior to June 1993 he had also been President and Chief
                  Executive Officer of the Company and W-B since May 1988. In
                  addition, he is a Director of all of the Company's
                  subsidiaries. He is a brother of Harold T. Kantor.

                  Sheldon A. Gold is a certified public accountant and has been
                  President of the Company since June 1993. Prior thereto and
                  since March 1992 he had been Vice Chairman of the Board and
                  since May 1988 he had been Executive Vice President,
                  Treasurer, and Chief Financial and Accounting Officer of the
                  Company. He again became Treasurer and Chief Financial and
                  Accounting Officer of the Company in July 1992, until May,
                  1996. In August 1999, he once again became chief financial and
                  accounting officer of the Company. In addition, he has been a
                  Director of the Company since May 1988. He has also been the
                  President of W-B since June 1993, Executive Vice President
                  between 1979 and June 1993, and Chief Financial and Accounting
                  Officer of W-B since 1979 through May 1996 and subsequent to
                  August 1999.

                  Reed A. Martin, elected as a Director in May 1992, has since
                  June 1993 been Executive Vice President and Chief Operating
                  Officer, since May 1991 he had been a Senior Vice President of
                  the Company supervising operations. Mr. Martin is a son-in-law
                  of Marvin D. Kantor.



                                      III-1


<PAGE>   61


ITEM 10.          DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
                  (CONTINUED)


                  Harold T. Kantor has been Vice-Chairman since June 1993 and a
                  Director of the Company since May 1988. In addition, he has
                  been Vice President of W-B since October 1985. He is a brother
                  of Marvin D. Kantor.

                  Paul H. Levine has been a Director since January, 1990 and
                  serves on the audit and stock option committee. He is
                  President of Lifetime Financial Strategies, Inc., a registered
                  investment advisor. Mr. Levine is a non-practicing attorney
                  and certified public accountant and has been active in venture
                  capital, investment banking and financial consulting since
                  1972. He is also a Director of Learning Technologies, Inc.,
                  and Bio-Catalytic Enterprises, Inc.

                  Dr. Gerald M. Penn, M.D., Ph.D., was elected as a director on
                  February 8, 1995 and became the Vice President of Medical
                  Affairs of the Company on January 1, 1998. He serves on the
                  stock option committee and also served on the audit committee
                  through December 31, 1997. Dr. Penn was previously Chairman
                  and Medical Director of the Department of Pathology at Grant
                  Medical Center 1981-1996. Educated at The Ohio State
                  University, Doctor Penn received his medical degree from the
                  College of Medicine and a doctoral degree in biochemistry. He
                  completed a pathology residency at University Hospital and
                  postgraduate training at The Rockefeller University, New York,
                  NY. He is board certified in clinical and anatomical
                  pathology, immunopathology and hematopathology. He serves on
                  the Board of Trustees of the Columbus Medical Association
                  Foundation and is Secretary/Treasurer of that organization.

                  Clemente Del Ponte was elected as a director of the Company on
                  June 18, 1997. For the past five years he has been the
                  managing director of McBridge Advisory, Ltd., an import/export
                  consulting agency. Prior thereto, he was an independent
                  consulting agent. Mr. Del Ponte resides in Lugano,
                  Switzerland. He resigned from the Board of Directors effective
                  June 2000 and served until his resignation on June 16, 2000.

                  David E. Fernie was elected as a director of the Company on
                  July 30, 1998 and is a member of the Audit Committee. He has
                  been Professor of Education at Ohio State University since
                  1984. Prior to that, he was an Assistant Professor at the
                  University of Houston. He received his Ed. D. from University
                  of Massachusetts at Amherst and his Bachelors degree in
                  political theory from Harvard College.

ITEM 11.        EXECUTIVE COMPENSATION

                  GENERAL. The following table sets forth the total annual
                  compensation paid or accrued by the Company and its
                  subsidiaries to or for the account of (i) the President (the
                  chief financial officer) of the Company and (ii) for the
                  Company's most highly compensated executive officers other
                  than the chief executive officer who were serving as executive
                  officers at December 31, 1999 and with respect to each of whom
                  such compensation exceeded $100,000. The Chairman of the
                  Board, Marvin D. Kantor, determines executive officer
                  compensation including his own.


                                      III-2


<PAGE>   62


ITEM 11.          EXECUTIVE COMPENSATION (CONTINUED)

                  EMPLOYMENT AND SEVERANCE AGREEMENT WITH CERTAIN OFFICERS.
                  Subsequent to year end, the Company has entered into
                  Employment Agreements with Marvin D. Kantor, Chairman and
                  Chief Executive Officer; Sheldon A. Gold, President and Chief
                  Financial Officer, and Reed A. Martin, Executive Vice
                  President. These Employment Agreements set forth:

                  (a)      the Executives compensation and benefits, the base
                           compensation of which has been frozen at 1999 levels
                           for five (5) years;

                  (b)      the Company's right to terminate the Executive for
                           cause or otherwise;

                  (c)      the amounts to be paid by the Company in the event of
                           the Executive's termination, death or disability
                           while rendering services;

                  (d)      the Executive's duty of strict confidence;

                  (e)      the Exectives obligation not to compete for the term
                           of the agreement plus two (2) years, unless the
                           Executive terminated his employment for "good reason"
                           or the employer terminates the Executive other than
                           for cause; and

                  (f)      the Executive's right to receive severance payments
                           if he (i) is terminated during the term of the
                           Employment Agreement other than for cause, or (ii)
                           voluntarily terminates for defined "good reasons",
                           including a change of control. Specifically, under
                           the Employment Agreement they are entitled to
                           receive their base salary plus fringe benefits for
                           the balance of the term of their Agreement. A tax
                           gross-up on excise taxes will also be paid if the
                           severance pay exceeds the limit imposed by the
                           Internal Revenue Code. In addition, the Executive
                           will continue to be eligible for health benefits,
                           perquisites, and fringe benefits generally made
                           available to senior executives following his
                           termination.

                  The Company also entered into Indemnification Agreements with
                  each current member of the Board of Directors as well as each
                  of the Company's executive officers. These Agreements provide
                  that, to the extent permitted by Delaware law, the Company
                  will indemnify the director or officer against all expenses,
                  costs, liabilities and losses (including attorney fees,
                  judgments, fines and settlements) incurred or suffered by the
                  director or officer in connection with any suit in which the
                  director or officer is a party or is otherwise involved as a
                  result of the individual services as a member of the Board of
                  Directors or as an officer so long as the individual's conduct
                  that gave rise to such liability meets certain prescribed
                  standards.


                                      III-3


<PAGE>   63


ITEM 11.        EXECUTIVE COMPENSATION (CONTINUED)



                           SUMMARY COMPENSATION TABLE
                           --------------------------

<TABLE>
<CAPTION>
                                                                              LONG-TERM
                                                                             COMPENSATION
                                                                             ------------
                                                   ANNUAL COMPENSATION       AWARDS
                                                   -------------------       ------
                                                                             SECURITIES
                                                                             UNDERLYING
                            NAME AND                                         OPTIONS/               ALL OTHER
                       PRINCIPAL POSITION       YEAR          SALARY ($)     SARS (#)              COMP. ($)**
                       ------------------       ----          ----------     --------              -----------

<S>                                             <C>           <C>            <C>                   <C>
                    Marvin D. Kantor            1999            188,462        *                      65,028
                    Chairman of the Board       1998            152,885        *                      65,028
                    and Chief Executive         1997            140,000        *                      65,028
                    Officer

                    Sheldon A. Gold             1999          $ 160,000        *                    $ 23,298
                    President and Chief         1998            175,384     25,000/0                  60,176
                    Financial Officer           1997            160,000         *                     15,532

                    Reed A. Martin              1999            105,000         *                      4,246
                    Executive Vice              1998            104,519     25,000/0                   4,644
                    President and Chief
                    Operating Officer
</TABLE>

                  --------------
                  *   Not applicable

                  ** Includes life insurance premiums paid by the Company for
                  each of named persons (see Note 11D of the Notes to the
                  Consolidated Financial Statements herein). For the fiscal year
                  ended December 31, 1999, the amounts paid by the Company for
                  the benefit of each of the named persons is:


                                                 LIFE
                    NAME                      INSURANCE
                    ----                      ---------

                    Marvin D. Kantor          $  65,028
                    Sheldon A. Gold              23,298
                    Reed A. Martin                4,246



                                     III-4


<PAGE>   64


ITEM 11.        EXECUTIVE COMPENSATION (CONTINUED)

                  OPTIONS. The following table sets forth information respecting
                  the grant by the Company of options to purchase shares of its
                  Common Stock and other information related to options granted
                  by the Company:

                                       OPTION/SAR GRANTS IN LAST FISCAL YEAR
                                       -------------------------------------

                                             INDIVIDUAL GRANTS
                                             -----------------

<TABLE>
<CAPTION>
                                        NUMBER OF        % OF TOTAL
                                        SECURITIES      OPTIONS/SARS     EXERCISE
                                        UNDERLYING       GRANTED TO       OR BASE                  GRANT DATE
                                       OPTIONS/SARS     EMPLOYEES IN       PRICE     EXPIRATION     PRESENT
                          NAME         GRANTED (#)       FISCAL YEAR      ($/SH)       DATE        VALUE ($)
                          ----         -----------       -----------      ------       ----        ---------

                          None

                  AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
                  --------------------------------------------------------------------------------

                                                                                                    VALUE OF
                                                                                 NUMBER OF         UNEXERCISED
                                                                                UNEXERCISED       IN-THE-MONEY
                                                                              OPTIONS/SARS AT     OPTIONS/SARS
                                                                               FY-END-# SHRS       AT FY END-$
                                                                              ---------------    -------------
                                                 SHARES
                                                ACQUIRED          VALUE        EXERCISABLE/       EXERCISABLE/
                                               ON EXERCISE        REALIZED      UNEXERCISABLE      UNEXERCISABLE
                                               -----------        --------     --------------    ---------------
<S>                                              <C>              <C>           <C>                 <C>
                    Sheldon A. Gold              50,000           $43,750        25,000/0              N/A
</TABLE>

                  All options held by Mr. Gold were exercisable at December 31,
                  1999. No options were "in-the-money". American Stock Exchange
                  reported quotations for the Common Stock of the Company on
                  December 31, 1999, are: high, $.625; low $.625; and close,
                  $.625; such prices on April 18, 2000 are: high, $.625; low,
                  $.625; and close, $.625.



                                      III-5


<PAGE>   65


ITEM 11.          EXECUTIVE COMPENSATION (CONTINUED)

                  STOCK OPTION PLAN. In 1983, the Company adopted an Incentive
                  Stock Option Plan which was amended in 1989 and 1998 (as
                  amended, the "Plan"). Pursuant to the Plan, the Company is
                  authorized to grant stock options to purchase up to 500,000
                  shares of Common Stock of the Company, subject to
                  anti-dilution provisions, to key personnel, including eligible
                  directors, officers and employees of the Company. In the event
                  that any option granted under the Plan shall terminate prior
                  to its exercise in full for any reason, then the shares
                  subject to the option not acquired by exercise of the option
                  shall be added to the shares otherwise available for the grant
                  of options under the Plan. Options granted under the Plan may
                  be those intended to qualify as "incentive stock options", as
                  defined in Section 422 of the Internal Revenue Code of 1986,
                  as amended (the "Code"), or those not intended so to qualify.
                  At June 30, 2000 options to purchase an aggregate of 219,000
                  shares of Common Stock of the Company, subject to
                  anti-dilution provisions, could still be granted under the
                  Plan.

                  The Plan is currently administered by a Committee of the Board
                  of Directors of the Company consisting of Messrs. Levine and
                  Penn, which have the authority (except with respect to stock
                  options to Non-Employee Directors which are mandated by the
                  Plan) to determine the grantees of the options, whether
                  options granted are to be "incentive stock options" or
                  non-incentive stock options except that Non-Employee Directors
                  must receive non-incentive stock options, the number of shares
                  to be covered by each option, the time at which each option is
                  exercisable, the method of payment, and certain other
                  provisions of the option. Options may be granted for a term
                  not to exceed 10 years (five years with respect to a 10%
                  stockholder) and are not transferable or assignable other than
                  by will or the laws of descent and distribution.

                  An option may be exercised within twelve months after the
                  death or disability of the optionee, to the extent the option
                  was exercisable at the time of death or disability. The
                  exercise price of all options (other than non-incentive stock
                  options granted to persons other than Non-Employee Directors)
                  must be at least equal to the fair market value of shares of
                  Common Stock of the Company on the date of grant, or 110% of
                  such fair market value with respect to any optionee who is a
                  10% stockholder of the Company.

                  The Plan will terminate on April 25, 2001. The Board of
                  Directors of the Company may, however, terminate the Plan at
                  any time prior to such date. Termination of the Plan will not
                  alter or impair, without the consent of the optionee, any of
                  the rights or obligations under any option theretofore granted
                  under the Plan.

                  The Plan provides that no option granted thereunder shall be
                  exercisable if the Company shall, at any time and in its sole
                  discretion, determine that (i) the listing upon any securities
                  exchange, registration or qualification under any state or
                  federal law of any shares otherwise deliverable upon such
                  exercise, or (ii) the consent or approval of any regulatory
                  body of the satisfaction of withholding tax or other
                  withholding liabilities, is necessary or appropriate in
                  connection with such exercise. In any of such events, the
                  exercisability of the option is suspended and is not effective
                  unless and until such withholding, listing, registration,
                  qualification or approval shall have been effected or obtained
                  free of any conditions not acceptable to the Company in its
                  sole discretion, notwithstanding any termination of any option
                  or any portion of any option during the period when
                  exercisability has been suspended.


                                      III-6


<PAGE>   66


ITEM 11.          EXECUTIVE COMPENSATION (CONTINUED)

                  The Plan also provides that the Board or, if so designated,
                  the Committee (of directors of the Company appointed to
                  administer the Plan) may require, as a condition to the right
                  to exercise an option, that the Company receive from the
                  option holder, at the time of any such exercise, the
                  representation, warranties and agreements to the effect that
                  the shares acquired upon exercise of such options are being
                  purchased by the option holder only for investment and without
                  any present intention to sell or otherwise distribute such
                  shares and that the option holder will not dispose of such
                  shares in transactions which, in the opinion of counsel to the
                  Company, would violate the registration provisions of the
                  Securities Act of 1933 and the rules and regulations
                  thereunder. The certificates issued to evidence such shares
                  will bear appropriate legends summarizing such restriction on
                  the disposition thereof.

                  SPLIT-DOLLAR INSURANCE POLICIES. The following table sets
                  forth information as of December 31, 1999, concerning
                  split-dollar insurance policies on the lives of the named
                  persons in the Summary Compensation Table (1):

<TABLE>
<CAPTION>
                                                  INITIAL FACE                             INSURANCE PREMIUMS
                                                   AMOUNT OF                               ADVANCED IN EXCESS OF
                    NAME OF INSURED (2)              POLICY                ISSUED          CASH VALUE (5)
                    -------------------              ------                ------          ---------------------
<S>                                           <C>                         <C>                <C>
                    Marvin D. Kantor          $    1,500,000 (3)(6)       06/08/92            $ 424,000
                    Sheldon A. Gold                  375,000 (4)          09/11/86               74,000
                    Reed A. Martin                   375,000 (3)(6)       06/08/92               15,000
</TABLE>

                  The Company, pursuant to split-dollar agreements, has
                  purchased life insurance on the lives of certain officers
                  (including named persons in the Summary Compensation Table)
                  and key employees on a "split-dollar" basis. The program is
                  designed so that advances of premium payments (the "advances")
                  the Company makes on behalf of each insured are collateralized
                  by assignment of the related life insurance policy (i.e., the
                  accumulated policy cash value and the policy death benefit).

                  The insured person owns the policy and, with the consent of
                  the Company, is permitted to borrow from the cash surrender
                  value of the policy.

                  Under the "split-dollar" agreements, the Company upon death or
                  other separation from service of the insured receives the
                  return of the advances from the death benefits or cash
                  surrender value, if any, of the policy, as the case may be.

                  -------------------------

                  (1)      See footnote to the Summary Compensation Table for
                           information respecting Company premium payments for
                           the fiscal year ended December 31, 1999.

                  (2)      The beneficiaries of the policies are the spouses
                           of the insured.

                  (3)      The policy is an increasing death benefit policy
                           (through use of dividends) and has replaced a
                           previous universal life policy.

                  (4)      The policy is of the universal life nature, whereby
                           the cash value is added to the face value at all
                           times, including death.

                  (5)      Represents monies advanced by the Company in excess
                           of cash value available in the policies.

                  (6)      The policy was replaced subsequent to year-end with a
                           policy of similar nature, without increase to
                           premium and without the previous policy's loan. The
                           net cash surrender value was received by the
                           Company.


                                      III-7


<PAGE>   67


ITEM 11.          EXECUTIVE COMPENSATION (CONTINUED)

                  The Company has represented its intention and obligation to
                  maintain the policies. The individuals have enhanced the
                  realization of these receivables by pledging a portion of
                  their common stock ownership in the Company.

                  At December 31, 1999, the underlying collateral of common
                  stock, using the trading price of $.625 per share, represented
                  collateral approximating $418,000 for a collateral deficiency
                  of approximately $238,000. On August 10, 2000, the Company was
                  delisted from the American Stock Exchange for non-filing of
                  the Form 10K for the year ended December 31, 1999 with the
                  Securities and Exchange Commission. As the common stock
                  subsequent to year-end does not have an available market for
                  trading, management has determined that a 20% reduction in the
                  trading price is reasonable for purposes of valuing its common
                  stock as collateral. The Company's common stock was trading on
                  April 18, 2000 (the last day of trading) at $.625; therefore,
                  with a 20% reduction in value, the common stock is valued at
                  $.50 per share for purposes of valuing collateral. Based on
                  this revised valuation, a reserve of $321,500 has been
                  recorded in the "Consolidated Statements of Operations" as
                  non-recurring items for the year ended December 31, 1999.

                  SECTION 401(k) PLAN. Effective July 1, 1989, the Company
                  established a Plan and Trust (the "Plan") intended to comply
                  with the provisions of Section 401(k) of the Internal Revenue
                  Code.

                  All full-time (as defined) employees of the Company and of its
                  subsidiaries (collectively referred to under this sub-caption
                  as the "Company") who were employees on July 1, 1989, and
                  persons who became employees thereafter and are continuously
                  employed for one year are eligible to participate in the Plan.
                  The Plan was amended January 1, 1997 to include employees of
                  affiliates accounted for on the equity method. Under the Plan,
                  an eligible employee who elects to participate defers a
                  portion (the "Portion") of his compensation, as defined, the
                  Portion being up to the maximum which will not cause the Plan
                  to favor Highly-Compensated Employees, as defined, or cause
                  the Plan to exceed the maximum amount allowable as a deduction
                  to the Company under Section 404 of the Code. The Company
                  contributes under the Plan, for the account of such eligible
                  employee, an amount equal to the Portion; in substance the
                  contribution is being made by the eligible employee.

                  The Plan provides that the Company shall make a contribution
                  (which is in addition to the contribution referred to in the
                  preceding sentence and shall be in shares of Common Stock of
                  the Company) equal to 10% of the aggregate amount of all
                  contributions made by participants, except that for this
                  purpose a maximum of 10% of the compensation of each
                  participant is taken into account. The Plan also provides that
                  the Company may contribute a discretionary amount to all
                  participants out of its current or accumulated Net Profit, as
                  defined, for the applicable Fiscal Year, as defined.

                  All contributions of the participant vest immediately.
                  Contributions of the Company vest in accordance with the
                  number of Years of Service, as defined, of the participant
                  with vesting of 20% after one year of Service and thereafter
                  increasing by 20% increments for each Year so that after five
                  years or more of Service, the Company's contributions become
                  fully vested. Notwithstanding the foregoing, the Company's
                  contributions fully vest upon the retirement, death,
                  disability of a participant (all as defined in the 401(k)
                  Plan); or in the event that the 401(k) Plan is terminated in
                  whole, or to the extent particular participants are affected
                  thereby, in part.

                  The Trustee under the Plan, Merrill Lynch Trust Company,
                  invests cash contributed or otherwise held under the Plan as
                  it is instructed by the employee participants, who have the
                  discretion of fund selection.

                  Distributions from the Plan are made available on a
                  participant's retirement, death, disability, or the
                  termination of employment for any reason other than the
                  foregoing. Advance distributions on account of hardship may be
                  made in limited circumstances as provided in the 401(k) Plan.

                                      III-8


<PAGE>   68


ITEM 11.          EXECUTIVE COMPENSATION (CONTINUED)

                  Payment of vested amounts are made in accordance with
                  directions of the Committee, appointed by the Company to act
                  under the 401(k) Plan, either in one lump sum payment or in
                  annual cash installments over a period not to exceed 10 years.

                  COMPENSATION OF DIRECTORS. Non-employee Directors of the
                  Company receive $650 for each meeting of the Board of
                  Directors of the Company which they attend and such Directors
                  are also reimbursed for any expenses incurred. In addition,
                  beginning January 1, 1995 all Non-Employee Directors are
                  compensated $500 per month for serving as director of the
                  Company. No additional amounts are paid for committee
                  participation.

                  In addition, Non-Employee Directors have been granted stock
                  options under the Plan to purchase shares of Common Stock of
                  the Company. "Non-Employee Directors" are defined in the Plan
                  as Directors of the Company who are not also employees of the
                  Company, who have served as Directors for twelve consecutive
                  full months, and who at the end of such period are continuing
                  to serve as Directors. The Plan also provides for a grant of
                  additional stock options to each Director who received an
                  option for 10,000 shares of Common Stock ("the Initial
                  Option"), each of such additional options to provide for the
                  purchase of an aggregate maximum of 1,000 shares of Common
                  Stock of the Company at a price per share equal to the fair
                  market value of the Common Stock of the Company on the date of
                  grant, subject to anti-dilution provisions, one of such
                  additional options to be granted on each successive
                  anniversary of the date of grant of the Initial Option,
                  provided that such Director continues on such anniversary to
                  be a Non-Employee Director. Pursuant to the Second Amendment
                  of the Stock Option Plan, on each fifth anniversary of
                  receiving the initial 10,000 stock option, such Non-Employee
                  director will receive an option for 10,000 shares instead of
                  1,000 shares. Each of the stock options set forth in the chart
                  below are exercisable commencing on the date of grant and
                  ending on the fifth anniversary of such date. None of the
                  options set forth in the chart below have been exercised. All
                  of the options are subject to anti-dilution provisions. The
                  following table illustrates the options issued as discussed
                  above.

<TABLE>
<CAPTION>
                                                                    DATE OF      SHARES SUBJECT         OPTION
                    NON-EMPLOYEE DIRECTOR                            GRANT         TO OPTION            PRICE
                    ---------------------                            -----         ---------            -----
<S>                                                                 <C>                <C>              <C>
                    Paul H. Levine                                  07/11/95           1,000            0.4375
                    Paul H. Levine                                  07/11/96           1,000             0.875
                    Paul H. Levine                                  07/11/97           1,000            1.1875
                    Paul H. Levine                                  07/30/98          10,000             1.375
                    Paul H. Levine                                  07/30/99           1,000             1.375
                    Gerald M. Penn                                  02/01/97           1,000             1.435
                    Gerald M. Penn                                  02/01/98           1,000              1.25
</TABLE>

                                      III-9


<PAGE>   69


ITEM 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

                  The table below presents as of June 30, 2000 certain
                  information (1) with respect to any person (including any
                  "group" as that term is used in Section 13(d)(3) of the
                  Securities Exchange Act of 1934, as amended ) who is known to
                  the Company to be the beneficial owner of more than five
                  percent of any class of the Company's voting securities and
                  (2) as to each class of equity securities of the Company or
                  any of its parents or subsidiaries, other than directors'
                  qualifying shares, beneficially owned by each director and
                  executive officer of the Company and by all directors and
                  executive officers of the Company as a group.

<TABLE>
<CAPTION>
                                                                   AMOUNT AND NATURE AND          PERCENT
       TITLE OF CLASS                 NAME                       BENEFICIAL OWNERSHIP (1)       OF CLASS (2)
       --------------                 ----                       ------------------------       ------------

<S>                          <C>                                      <C>                        <C>
        Common Stock         Marvin D. Kantor                         909,320 (3)                14.98%
                             Two Nationwide Plaza
                             Suite 760
                             Columbus, Ohio 43215

        Common Stock         Harold T. Kantor                         222,475                     3.67%

        Common Stock         Sheldon A. Gold                           65,702                     1.08%

        Common Stock         Reed A. Martin                             4,978                         -

        Common Stock         Paul H. Levine                             1,500                         -

        Common Stock         Dr. Gerald M. Penn                        16,250                         -

        Common Stock         David E. Fernie                              200                         -

        Common Stock         All Directors and                      1,220,425                    20.11%
                             Executive Officers
                             As a Group (7 persons)

        Common Stock         McBridge Advisory Ltd.                   668,200 (4)                11.01%
                             c/o Clemente Del Ponte
                             via Lavizzari 3
                             P.O. Box 2527
                             6901 Lugano, Switzerland

        Common Stock         Gerald F. Schroer                        413,800 (4)                 6.82%
                             25109 Detroit Road
                             Westlake, Ohio 44145
</TABLE>

                  -------------------

                  (1)      The individuals named have direct ownership and sole
                           voting and investment power, except as otherwise
                           indicated.

                  (2)      Percent of class shown net of treasury shares (see
                           (8) below). Except as otherwise indicated, shares
                           owned by the individuals named represent less than 1%
                           of the outstanding shares of Common Stock of the
                           Company.

                  -------------------
                  (Footnotes continued on following page)


                                     III-10


<PAGE>   70


ITEM 13.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

                  MHK Corp., of which Marvin D. Kantor and Harold T. Kantor are
                  the sole shareholders, has incurred indebtedness to the
                  Company. The largest amount of such indebtedness outstanding
                  in 1999 was $846,959 (before a reserve adjustment); 1998 was
                  $796,561; and 1997 was $799,718. During April 1999, the
                  Company revised, effective January 1, 1999, all obligations
                  due from MHK into a single promissory note ($790,600 at
                  December 31, 1998) providing for monthly payments effective of
                  $9,180, including interest at 7% per annum. Through June 30,
                  2000 a principal balance of $626,521 is outstanding. The April
                  1999 revision of the obligations includes a commitment to
                  achieve a current status by the end of 1999. Also, the Company
                  has received additional collateral and a commitment from one
                  of the principals, a Company officer and director, to provide
                  personal payments of $3,000 per month toward the MHK
                  obligation. Interest at 7% totaling $26,000, $20,000 and
                  $68,328 has been charged, through December 31, 1999, 1998 and
                  1997, respectively.

                  A significant portion of this indebtedness arose, effective
                  January 1, 1995 when the Company sold the operating assets of
                  a subsidiary's retail liquor store and two lounges in Florida
                  to MHK Corp. The purchase price was equivalent to the net book
                  value of the net assets which totaled $574,949 as adjusted for
                  certain 1995 transactions. The remainder of the debt is
                  attributable to loans made to MHK Corp. for accrued interest
                  and working capital in 1995 and 1996. Additional advances were
                  made in 1998, 1999 and 2000. Collateral for this indebtedness
                  includes the operating assets of MHK Corp. and additional
                  commercial real estate property owned by the Kantors in
                  Dayton, Ohio (see Note 11B).

                  Management has evaluated future cash flows and/or use of
                  collateral to support the outstanding balances for the note
                  receivable and advances. During 1999, due to changes in
                  certain of the collateral, the note not being amortized in
                  accordance with the revised note schedule, and continued
                  advances in 1999 and 2000, a reserve of $419,000 has been
                  recorded in the "Consolidated Statements of Operations" as
                  non-recurring items.

                  The President and CFO of the Company, Mr. Sheldon Gold, has
                  incurred borrowings from the Company. The largest amount of
                  such indebtedness outstanding in 1999 was $198,000; 1998 was
                  $213,000; and 1997 was $243,412. On June 30, 2000, the amount
                  of such indebtedness was $198,000. No interest is paid or
                  charged on such indebtedness. The President/CFO has granted
                  collateral to the Company to enhance the realization of the
                  indebtedness, in the form of stock in the Company and a
                  residential mortgage. Additional collateral was obtained in
                  1999 to cover the reduced value of the Company's common stock.
                  The loan is evidenced by a promissory note providing for
                  minimum annual payments of $15,000, as amended (see Note 11C).

                  Certain executive officers and directors of the Company are
                  limited partners owning less than an aggregate 10% interest in
                  Wendt-Bristol Diagnostics Company L.P. A subsidiary of W-B is
                  the general partner of Wendt-Bristol Diagnostics Company L.P.

                  -------------------

                  (Footnotes continued on following page)

                                     III-11


<PAGE>   71


ITEM 13.        CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (CONTINUED)

                  -------------------
                  (Footnotes continued from previous Page)

                  (3)      In addition to the shares indicated in the table of
                           Item 12, the following Directors and Executive
                           Officers may acquire shares of common stock by
                           exercising options granted under the Company's Stock
                           Option Plan. Such shares are not included in the
                           individual's total or in the calculation of percent
                           of class.

                                                                STOCK OPTION
                                                                  SHARES
                                                                  ------

                            Harold T. Kantor                      75,000
                            Sheldon A. Gold                       25,000
                            Reed A. Martin                        35,000
                            Paul H. Levine                        14,000
                            Dr. Gerald M. Penn                     2,000
                            David E. Fernie                       10,000
                                                                --------
                                Total                            161,000
                                                                --------


                  (4)      Pursuant to a Schedule 13D filed with the Securities
                           Exchange Commission on August 17, 2000 filed by
                           McBride Advisory and Gerald F. Shroer, other parties
                           were listed thereon, none of which had a total number
                           of shares greater than 5%, but in the aggregate
                           represented an additional 738,987 shares (12.18%).

                  -------------------------


                                     III-12


<PAGE>   72


                                     PART IV

ITEM 14.        EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

       (a)      Documents filed as part of this Form 10-K:

<TABLE>
<CAPTION>
                1.       Financial Statements.  The following financial statements are included in Part II, Item 8:

                                                                                           PAGE
                                                                                           ----

<S>                                                                                     <C>
                          Report of Independent Auditors                                    -

                          Consolidated Balance Sheets as of December                 II-13 and II-14
                           31, 1999 and 1998

                          Consolidated Statements of Operations for                  II-15 and II-16
                           the years ended December 31, 1999, 1998
                           and 1997

                          Consolidated Statements of Comprehensive Income                 II-17
                           for the years ended December 31, 1999, 1998 and 1997.

                          Consolidated Statements of Stockholders'                        II-18
                           Equity for the years ended December 31,
                           1999, 1998 and 1997

                          Consolidated Statements of Cash Flow for                   II-19 and II-20
                           the years ended December 31, 1999, 1998
                           and 1997

                          Notes to Consolidated Financial Statements               II-21 through II-50
</TABLE>

<TABLE>
<CAPTION>
                  2.     Financial Statement Schedules.  The following financial statement schedules for the years
                         ended December 31, 1999, 1998 and 1997 are included in Part IV:

                        SCHEDULE                                                             PAGE
                        --------                                                             ----

<S>                                                                                         <C>
                         II.      Valuation and Qualifying Accounts and
                                   Reserves                                                IV-6

                All other schedules are omitted because they are not required,
                inapplicable, or the information is otherwise shown in the Financial Statements
                or Notes thereto.
</TABLE>

<TABLE>
<CAPTION>
                  3.       Exhibits Filed Under Item 601 of Regulation S-K. (Numbers assigned to the following
                           correlate to those used in such Item 601).

                              EXHIBIT
                              NUMBER                     DESCRIPTION
                              ------                     -----------

<S>                                       <C>
                                2.1       Merger Agreement among the
                                          Wendt-Bristol Health Services
                                          Corporation, Wendt-Bristol
                                          Acquisition, Inc. and Wendt-Bristol
                                          Diagnostics Company dated September
                                          25, 1998 filed as Exhibit 2.1 to Form
                                          S-4 filed February 5, 1999 and
                                          incorporated herein by reference
                                          pursuant to Rule 411(c).
</TABLE>


                                      IV-1


<PAGE>   73


ITEM 14.        EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
               (CONTINUED)

       (a)      Documents filed as part of this Form 10-K: (Continued)

<TABLE>
<CAPTION>
                3.       Exhibits Filed Under Item 601 of Regulation S-K.
                         (Numbers assigned to the following correlate to
                         those used in such Item 601). (Continued)

                         EXHIBIT
                         NUMBER                   DESCRIPTION
                         ------                   -----------

<S>                                  <C>
                           2.2       Merger Agreement among the Wendt-Bristol
                                     Health Services Corporation, Wendt-Bristol
                                     Acquisition LLC and Wendt-Bristol
                                     Diagnostics Company L.P. dated September
                                     25, 1998 filed as Exhibit 2.2 to Form
                                     S-4 filed February 5, 1999 and incorporated
                                     herein by reference pursuant to Rule
                                     411(c).

                           3.1       Certificate of Incorporation of registrant.
                                     Filed as Exhibit B to the Company's Proxy
                                     Statement (June 27, 1988) and incorporated
                                     herein by reference pursuant to Rule
                                     411(c).

                           3.2       By-Laws of the Company. Filed as Exhibit C
                                     to the Company's Proxy Statement  (June 27,
                                     1988) and incorporated herein by reference
                                     pursuant to Rule 411(c).

                           4.1       See Exhibits numbered Exhibit 3.1 and 3.2

                           4.2       Warrant Agreement, dated April 29, 1988,
                                     between The Wendt-Bristol Company, Corna &
                                     Co., Inc. and Mellon Securities Trust
                                     Company, as Warrant Agent.  Filed as
                                     Exhibit 4.2 to Registration Statement on
                                     Form S-1 of The Wendt-Bristol Company (Reg.
                                     No. 33-8399, filed October 15, 1986) and
                                     incorporated herein by reference to Rule
                                     411(c).

                           4.3       Warrant Agreement, dated April 29,
                                     1988, between The Wendt- Bristol Company,
                                     Pittsburgh National Bank, N.A., and The
                                     Fifth Third Bank, as Warrant Agent. Filed
                                     as Exhibit 4.3 to  the Company's Annual
                                     Report on Form 10-K for the year ended
                                     December 31, 1992 and incorporated herein
                                     by reference pursuant to Rule 411(c).

                           4.4       The Wendt-Bristol Health Services
                                     Corporation Terms of Series 1 Cumulative
                                     Dividend Convertible Preferred Stock.
                                     Files as Exhibit 4 to Company registration
                                     statement on Form S-4 (Reg. No. 333-64423,
                                     filed February 5, 1999) and incorporated
                                     herein by reference pursuant to Rule
                                     411(c).

                              9      Voting Trust Agreement, dated December
                                     4, 1992, between The Wendt-Bristol Health
                                     Services Corporation, Corporate Life
                                     Insurance Company and Marvin D. Kantor, as
                                     Voting Trustee. Filed as Exhibit 9 to the
                                     Company's Annual Report on Form 10-K for
                                     the year ended December 31, 1993 and
                                     incorporated herein by reference pursuant
                                     to Rule 411(c).

                          10.1       Employee Stock Option Plan, as amended.
                                     Filed as Exhibit 28.1 to the Company's
                                     Annual Report on Form 10-K for the year
                                     ended December 31, 1991, and incorporated
                                     herein by reference pursuant to Rule
                                     411(c).

</TABLE>

                                     IV-2


<PAGE>   74


ITEM 14.        EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
               (CONTINUED)

       (a)      Documents filed as part of this Form 10-K: (Continued)

<TABLE>
<CAPTION>
                  3.       Exhibits Filed Under Item 601 of Regulation S-K.
                           (Numbers assigned to the following correlate to
                           those used in such Item 601) (Continued)


                              EXHIBIT
                               NUMBER                     DESCRIPTION
                              -------                     -----------

<S>                                      <C>
                                10.2      Temco National Corporation 401(k)
                                          Profit Sharing Plan. Filed as Exhibit
                                          28.2 to the Company's Annual Report on
                                          Form 10-K for the Year Ended December
                                          31, 1991, and incorporated herein by
                                          reference pursuant to Rule 411(c).

                                10.3      Sale and Subservicing Agreement,
                                          dated as of February 5, 1993, among
                                          The Wendt-Bristol Company, et al, NPF
                                          IV, Inc. and National Premier
                                          Financial Services, Inc., relating to
                                          the health care receivables
                                          securitization program.  Filed as
                                          Exhibit 28.6 to the Company's Annual
                                          Report on Form 10-K  for the year
                                          ended December 31, 1992, and
                                          incorporated herein by reference
                                          pursuant to Rule 411(c).

                                10.4      Stock Purchase Agreement, dated June
                                          4, 1993, between The Wendt-Bristol
                                          Health Services Corporation and
                                          Corporate Life Insurance Company.
                                          Filed as Exhibit 10.4 to the Company's
                                          Annual Report on Form 10-K for the
                                          year ended December 31, 1993 and
                                          incorporated herein by reference
                                          pursuant to Rule 411(c).

                                10.5      Installment Business Loan Note, dated
                                          January 30, 1996, between The
                                          Wendt-Bristol Company and Marvin D.
                                          Kantor related to working capital
                                          loan. Filed as Exhibit 10.5 to the
                                          Company's Annual Report on Form 10-K
                                          for the year ended December 31, 1995
                                          and incorporated herein by reference
                                          pursuant to Rule 411(c).

                                10.6      Stock Pledge Agreement dated January
                                          30, 1996, between The Wendt-Bristol
                                          Company and Marvin D. Kantor related
                                          to working capital loan. Filed as
                                          Exhibit 10.6 to the Company's Annual
                                          Report on Form 10-K for the year ended
                                          December 31, 1995 and incorporated
                                          herein by reference pursuant to Rule
                                          411(c).

                                10.7      Loan and Security Agreement, dated
                                          March 27, 1996, between Wendt-Bristol
                                          Diagnostics Company, L.P. and DVI
                                          Capital Company relating to equipment
                                          financing. Filed as Exhibit 10.7 to
                                          the Company's Annual Report on Form
                                          10-K for the year ended December 31,
                                          1995 and incorporated herein by
                                          reference pursuant to Rule 411(c).

                                10.8      Loan and Security Agreement, dated
                                          March 27, 1996, between Health
                                          America, Inc. dba Wendt-Bristol Center
                                          and DVI Capital Company relating to
                                          equipment financing. Filed as Exhibit
                                          10.8 to the Company's Annual Report on
                                          Form 10-K for the year ended December
                                          31, 1995 and incorporated herein by
                                          reference pursuant to Rule 411(c).
</TABLE>



                                                       IV-3


<PAGE>   75

ITEM 14.        EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
               (CONTINUED)

       (a)      Documents filed as part of this Form 10-K: (Continued)

<TABLE>
<CAPTION>
                  3.       Exhibits Filed Under Item 601 of Regulation S-K.
                           (Numbers assigned to the following correlate to
                           those used in such Item 601) (Continued)

                              EXHIBIT
                               NUMBER                    DESCRIPTION
                               ------                    -----------

<S>                                     <C>
                                10.9      Loan and Security Agreement, dated
                                          March 27, 1996, between American Care
                                          Center, Inc. dba Bristol House of
                                          Columbus and DVI Capital Company
                                          relating to equipment financing. Filed
                                          as Exhibit 10.9 to the Company's
                                          Annual Report on Form 10-K for the
                                          year ended December 31, 1995 and
                                          incorporated herein by reference
                                          pursuant to Rule 411(c).

                               10.10      Loan and Security Agreement, dated
                                          March 27, 1996, between Ethan Allen
                                          Care Center, Inc. dba Bristol House of
                                          Springfield and DVI Capital Company
                                          relating to equipment financing. Filed
                                          as Exhibit 10.10 to the Company's
                                          Annual Report on Form 10-K for the
                                          year ended December 31, 1995 and
                                          incorporated herein by reference
                                          pursuant to Rule 411(c).

                               10.11      Asset Purchase Agreement, dated April
                                          15, 1996, between Congress Liquors,
                                          Inc. and MHK Corp. Filed as Exhibit
                                          10.11 to the Company's Annual Report
                                          on Form 10-K for the year ended
                                          December 31, 1995 and incorporated
                                          herein by reference pursuant to Rule
                                          411(c).

                               10.11      Mortgage and security agreement
                                          dated April 1, 1996, between
                                          Wendt-Bristol Diagnostics Co. L.P. and
                                          National City Bank.  Filed as Exhibit
                                          10.11 to the Company's Form 10-Q for
                                          the quarter ended June 30, 1996 and
                                          incorporated herein by reference
                                          pursuant to Rule 411(c).

                               10.12      Mortgage and security agreement dated
                                          April 19, 1996 between The
                                          Wendt-Bristol Health Services
                                          Corporation and Grand Pacific Finance
                                          Corp. Filed as Exhibit 10.12 to the
                                          Company's Form 10-Q for the quarter
                                          ended June 30, 1996 and incorporated
                                          herein by reference pursuant to Rule
                                          411(c).

                               10.13      Receivables purchase and sale
                                          agreement dated May 30, 1996 between
                                          The Wendt-Bristol Company, et al, and
                                          HealthPartners Funding L.P., relating
                                          to the health care receivables
                                          securitization program. Filed as
                                          Exhibit 10.13 to the Company's Form
                                          10-Q for the quarter ended June 30,
                                          1996 and incorporated herein by
                                          reference pursuant to Rule 411(c).

                               10.14      Amendment to Receivables Purchase and
                                          Sale Agreement dated August 29, 1996
                                          between The Wendt-Bristol Company, et
                                          al, and HealthPartners Funding L.P.,
                                          relating to the health care
                                          receivables financing program. Filed
                                          as Exhibit 10.14 to the Company's Form
                                          10-Q for the quarter ended September
                                          30, 1996 and incorporated herein by
                                          reference pursuant to Rule 411(c).

</TABLE>

                                      IV-4


<PAGE>   76


ITEM 14.        EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
                (CONTINUED)

       (a)      Documents filed as part of this Form 10-K: (Continued)

<TABLE>
<CAPTION>
                  3.       Exhibits Filed Under Item 601 of Regulation S-K.
                           (Numbers assigned to the following correlate to
                           those used in such Item 601) (Continued)

                              EXHIBIT
                               NUMBER                      DESCRIPTION
                               ------                      -----------

<S>                                          <C>
                               10.15      Convertible subordinated bond, dated
                                          December 23, 1996, by and between The
                                          Wendt-Bristol Health Services
                                          Corporation and Societe Generale Bank
                                          & Trust, or registered assigns. Filed
                                          as Exhibit 1 to the Company's Form 8-K
                                          dated December 23, 1996 and
                                          incorporated herein by reference
                                          pursuant to Rule 411(c).

                               10.16      Series 1 Bond dated February 14, 1997,
                                          by and between The Wendt-Bristol
                                          Health Services Corporation and
                                          Societe Generale Bank & Trust, or
                                          registered assigns, with Schedule 1.
                                          Filed as Exhibit 1 to the Company's
                                          Form 8-K dated February 14, 1997 and
                                          incorporated herein by reference
                                          pursuant to Rule 411(c).

                               10.17      Series 1 Warrant dated February 14,
                                          1997, by and between The Wendt-Bristol
                                          Health Services Corporation and
                                          Societe Generale Bank & Trust, or
                                          registered assigns, with Schedule 1.
                                          Filed as Exhibit 2 to the Company's
                                          Form 8-K dated February 14, 1997 and
                                          incorporated herein by reference
                                          pursuant to Rule 411(c).

                               10.18      Marvin D. Kantor note/collateral

                               10.19      Employment agreements
                                              Marvin D. Kantor
                                              Sheldon A. Gold
                                              Reed A. Martin

                                 21       List of Subsidiaries

                                 27       EDGAR Financial Data Schedule

       (b)        Reports on Form 8-K filed during last fiscal (calendar)
                  quarter of 1999:
                  (1)      Report dated December 31, 1999 relating to sale of
                           nursing home.

</TABLE>

                                      IV-5

<PAGE>   77



                                                                     SCHEDULE II

         THE WENDT-BRISTOL HEALTH SERVICES CORPORATION AND SUBSIDIARIES

                 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
              ----------------------------------------------------



<TABLE>
<CAPTION>
   COLUMN A                                 COLUMN B         COLUMN C        COLUMN D                COLUMN E
------------------                      -------------    -------------     -----------          -------------
                                                            ADDITIONS
                                            BALANCE AT       CHARGED TO                              BALANCE
                                            BEGINNING        COSTS AND                               AT END
                                            OF PERIOD         EXPENSES       DEDUCTIONS             OF PERIOD
                                            ---------         --------       ----------             ---------
<S>                                     <C>             <C>              <C>                    <C>
December 31, 1999
  Reserve deducted from asset to
   which it applies:
    Allowance for doubtful trade
     accounts                              $    227,000    $     773,756    $     362,756 (a)     $     638,000
                                           ============    =============    =============         =============
  Valuation allowance for deferred
   tax assets                              $     -         $   2,428,000    $     -               $   2,428,900
                                           =============   =============    =============         =============
  Life insurance premiums
    receivable reserve                     $     -         $     321,500    $     -               $     321,500
                                           ============    =============    =============         =============

  Allowance for doubtful accounts -
   notes receivable related parties        $     -         $     518,623    $     -               $     518,623
                                           ============    =============    =============         =============

December 31, 1998
  Reserve deducted from asset to
   which it applies:
    Allowance for doubtful trade
     accounts                              $    101,000    $     208,238    $      82,237 (a)     $     227,000
                                           ============    =============    =============         =============

  Valuation allowance for deferred
   tax assets                              $    -          $     -          $     -               $     -
                                           ============    =============    =============         =============

December 31, 1997
  Reserve deducted from asset to
   which it applies:
    Allowance for doubtful trade
     accounts                              $     90,000    $      58,000    $      47,000 (a)     $     101,000
                                           ============    =============    =============         =============
  Valuation allowance for deferred
   tax assets                              $    200,000    $     -          $     200,000         $     -
                                           ============    =============    =============         =============

Notes:   (a)  Write-off of uncollectible amounts

</TABLE>

                                      IV-6


<PAGE>   78


                                   SIGNATURES


         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                               THE WENDT-BRISTOL HEALTH SERVICES
                                               CORPORATION
                                               (Registrant)

September 27, 2000                             By: /s/ Sheldon A. Gold
                                               --------------------------------
                                               President



Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:

<TABLE>
<CAPTION>
                  SIGNATURE                            TITLE                         DATE
                  ---------                            -----                         ----

<S>                                     <C>                                   <C>
/s/ Marvin D. Kantor                     Chairman of the Board, Principal
--------------------                     Executive Officer and Director        September 27, 2000
Marvin D. Kantor

/s/ Harold T. Kantor                     Vice Chairman of the Board            September 27, 2000
---------------------                    and Director
Harold T. Kantor

/s/ Sheldon A. Gold                      President, Chief Financial            September 27, 2000
-------------------                      Officer and Director
Sheldon A. Gold

/s/ Reed A. Martin                       Executive Vice President, Chief       September 27, 2000
------------------                       Operating Officer and Director
Reed A. Martin

/s/ Paul H. Levine                       Director                              September 27, 2000
------------------
Paul H. Levine

/s/ Gerald M. Penn                       Director                              September 27, 2000
------------------
Gerald M. Penn

/s/ David E. Fernie                      Director                              September 27, 2000
-------------------
David E. Fernie
</TABLE>


                                      IV-7